Guest Post: Careful trustee investment planning can bring ethical & environmental benefits

February 9, 2012 by Brenda
Filed under Family, Guest Posts, Top Picks

The role of the trustee is one of a guardian. In the eyes of the law, this responsibility to protect applies strictly to the management of the assets being held in trust – whether they are pension schemes, charitable trusts or family estate planning trusts.

Trustee investment planning is increasingly being broadened to include green and sustainability issues. We’re all becoming more aware of the role of investment planning in issues such as climate change, environmental protection, ethical trade and sustainable development. When trustees choose where to put the money in their care, an increasing number are being influenced by wider issues than just the best financial return.

Investment planning involves the bigger picture

These days, trusts are often set up to reduce the amount of tax to be paid, on, say, a legacy, or the assets gifted to a child.

Whatever the purpose of the trust, be it inheritance tax planning or to maximise the income of a child, by law the trustees should be looking to at least maintain the value of the assets which they control. Where the assets held by the trust are investments, the trustees are legally obliged to apply ‘standard investment criteria’ to their decisions.

However, this does not oblige trustees to focus entirely on financial returns. They can take a wider view and many are beginning to apply ‘Environmental Social and Governance’ or ESG criteria to their investment choices. They are choosing to avoid investing in certain industries, such as tobacco or alcohol – opting instead for funds which promote environmental protection or the growth of micro-businesses.

Opportunities for socially responsible trustee investment planning

Despite the ancient origins of the trust concept, the law covering how they operate has been brought up to date through the Trustee Act 2000. The Act makes it easier for trustees to choose ethical and environmental investments, as long as these don’t conflict with the purpose of the trust.

The Trustee Act 2000 also protects the interests of beneficiaries – those for whom the trust has been set up. Trustees have a duty of care in their responsibilities, to protect the trust from abuse – deliberate or unintended.

Trustees also have the right to delegate powers to third parties, such as investment advisors. Specialists can offer advice about which funds offer the best potential returns, taking into account the trustees’ desire to include at least some socially responsible funds in the portfolio.

Trustee investment planning is a complex area, with many different requirements that need to be considered. But by choosing environmental and ethical investments, it is possible to work for the good of both the trust beneficiaries and the wider world in which we live.

This article was supplied by Barchester Green Investment, the UKs longest established FSA-regulated independent financial adviser (IFA) specializing in ethical investment.