Socially Responsible Finance and Investing: Financial Institutions, Corporations, Investors, and Activists

CHAPTER 5

Fiduciary and Other Legal Duties

BENJAMIN J. RICHARDSON

Professor and Canada Research Chair in Environmental Law and Sustainability, University of British Columbia

INTRODUCTION

Can investors lawfully engage in socially responsible investment (SRI)? When individuals invest on their own behalf, they face few legal restrictions. But when someone else manages their money, such as in a pension plan, the fund’s trustees and managers have fiduciary obligations to invest prudently in the best interests of the beneficiaries.

The potential ambit of such legal constraints on SRI has generated much debate and some confusion. According to Stratos (2004, p. 12), a Canadian authority, “current interpretations of the fiduciary duties of pension fund managers may unnecessarily constrain their ability to address the full range of relevant corporate responsibility considerations related to prospective investments.” Conversely, research commissioned by the United Nations Environment Program’s Finance Initiative (UNEP-FI) suggests that SRI is not precluded or overly hampered by fiduciary duties when SRI addresses financially material considerations (Freshfields Bruckhaus Deringer 2005).

The legal scope for SRI depends somewhat on how socially responsible is defined. It is a contentious term full of complexity that mirrors the similarly passionate debates about the meaning of sustainable development or sustainability (Pezzoli 1997). As those debates reveal, while some believe sustainability ...