1. Paul Williams, Jonathan Mort Inc. The Legal Parameters of ESG:
Do’s and don’ts for trustees

2. The legal parameters of ESG: do’s and don’ts for trustees
Introduction
Why focus on the law?
What does the law require?
What are the parameters?
How to work within the legal parameters?
Conclusion: key messages
The legal parameters of ESG: do’s and don’ts for trustees

3. The legal parameters of ESG: do’s and don’ts for trustees
Why focus on the law?
Forms parameters of investment decision-making process
Perspective: refer back to those parameters
The legal parameters of ESG: do’s and don’ts for trustees

4. The legal parameters of ESG: do’s and don’ts for trustees
Legal requirements (1) – the common law
Take account of, and weigh up, all relevant factors in pursuance of the purpose of the fund
Cowan v Scargill: “when the purpose of the trust is to provide financial benefits…the best interests of beneficiaries are normally their best financial interests”
UNEP-FI 2005 report (Freshfields opinion): “integrating ESG considerations into an investment analysis so as to more reliably predict financial performance is clearly permissible and arguably required....”
ESG considerations relevant factors insofar as they affect performance
The legal parameters of ESG: do’s and don’ts for trustees

5. The legal parameters of ESG: do’s and don’ts for trustees
Legal requirements (2) – Regulation 28
“A fund and its board must at all times apply the following principles….
Before making an investment in and while invested in an asset consider any factor which may materially affect the sustainable long term performance of the asset including, but not limited to, those of an environmental, social and governance character”
Arguably goes no further than the common law
Significant, as removes (at least some) uncertainty
The legal parameters of ESG: do’s and don’ts for trustees

6. The legal parameters of ESG: do’s and don’ts for trustees
Trustees must not ignore ESG factors
In theory permissible not to take ESG factors into account if have good reasons for it
Primary goal must be performance/financial interests
If not detrimental to financial interests, can arguably take ESG considerations into account for non-financial reasons
The legal parameters of ESG: do’s and don’ts for trustees

7. The legal parameters of ESG: do’s and don’ts for trustees
Working within the parameters
One size does not fit all
Cost benefit analysis
You cannot be an ostrich about this
Pick the low hanging fruit
The legal parameters of ESG: do’s and don’ts for trustees

8. The legal parameters of ESG: do’s and don’ts for trustees
Some practical steps
Use your consultant’s expertise
Devise a policy and include in your IPS
Engage with your investment managers & custodians
Extent to which they include ESG considerations in analysis
What strategies do they adopt?
PRI (Principles of Responsible) signatory?
Voting policy and engagement with management – and do the two correspond?
Include in tenders for new IMs and investment consultants
Legally binding obligation in IMA
Structure fees to incentivise long term performance
Training
Sign up to PRI – benefits of membership
The legal parameters of ESG: do’s and don’ts for trustees

9. The legal parameters of ESG: do’s and don’ts for trustees
Conclusions – key messages
Ignoring ESG a breach of trustee duty
Financial interests still paramount
One size does not fit all
The legal parameters of ESG: do’s and don’ts for trustees

10. The legal parameters of ESG: do’s and don’ts for trustees
Thank you for listening
Any questions?
The legal parameters of ESG: do’s and don’ts for trustees

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