Balancing values and duties: the trustee's role in impact investing

At this year’s STEP Asia conference, Tom Zierer, Senior Executive Director in our Hong Kong SAR office, was joined by legal experts Caroline Tayler from Taylor Wessing and Matthew Braithwaite from Wedlake Bell to discuss how trustees are responding to growing demand for ESG-aligned investments while remaining within their legal and fiduciary obligations.

Why ESG and impact investing is reshaping the trustee landscape

As families look to align their investments with environmental and social values, a new layer of complexity is added for trustees whose core responsibility remains to protect and grow trust assets in the ‘best interests’ of the beneficiaries.

ESG investments can achieve this, but they can also introduce new types of risk or differ from traditional benchmarks, meaning trustees must tread carefully.

In common law jurisdictions, trustees are bound by duties of loyalty and prudence. Historically, this has meant focusing solely on financial return. However, thinking is evolving. ESG risks such as climate exposure, supply chain resilience and governance quality are increasingly seen as financially material. Including them in investment analysis is becoming part of what sound financial stewardship requires.

At the same time, both families and professional trustees are highly attuned to reputational risk. Being linked to controversial sectors or companies seen as lagging on ESG can lead to public scrutiny and financial consequences, particularly if media or market sentiment shifts.

Across Asia, regulators are now embedding ESG expectations into financial systems, and ignoring ESG factors may leave trustees open to legal claims or regulatory challenge.

• In Hong Kong, fund managers and pension trustees must disclose how ESG and climate risks are managed, and ESG reporting is mandatory for listed companies.
• In Singapore, the Monetary Authority of Singapore (MAS) has issued guidelines for asset managers and is linking tax incentives to sustainable investment strategies.
• In Mainland China, government policy encourages private wealth to support green finance, charitable trusts and socially aligned projects under the ’common prosperity’ framework.

The legal framework: does benefit always mean financial?

For most private trusts, the legal position remains clear: trustees must act in the best interests of the beneficiaries. Where a trust’s purpose is to provide financial support, courts have historically interpreted this as a duty to maximise financial return, consistent with proper diversification and prudent risk management. The decision in Cowan v Scargill remains a key reference point.

However, more recent cases suggest there may be limited scope for trustees to consider values-based outcomes, particularly where adult beneficiaries are in agreement or where the trust has non-financial aims.

• In Jersey, the May Trust case considered a situation where the trustee allowed a UK beneficiary to receive funds and then make a charitable donation, incurring UK tax in the process. A direct distribution to the charity could have avoided the tax charge. This was driven by the families agreement and ethics to pay tax on the amount donated. While suboptimal financially, the court accepted the decision.
• In Guernsey, a court blessed a protector’s decision to onshore a trust to the UK so the family could pay UK tax, in line with their view that it was a moral obligation. In this instance, “benefit” was interpreted in moral and social terms.

These examples remain the exception. They do not provide trustees with a general mandate to accept reduced returns in order to pursue ESG aims. But they do suggest a shift in how benefit might be interpreted in future.

Some jurisdictions, such as Bermuda and certain US states, are exploring statutory approaches that allow trustees to consider beneficiary views and broader societal outcomes in their investment decisions. Others, including Jersey and most common law jurisdictions, remain cautious. The emphasis remains firmly on financial benefit.

For trustees, it reinforces the importance of careful jurisdictional and structuring choices, particularly where ESG or values-driven strategies are in view. It also highlights the growing need to manage expectations, especially in trusts with diverse beneficiary classes and more vocal demands for responsible investing.

Structuring and drafting for ESG goals

If a family wants to reflect ESG aims in its investment strategy, trustees must start with the trust deed and ensure it allows for sufficient flexibility.

There are a number of structuring tools available for this:

• Reserved powers or directed trusts: Investment decisions can sit with settlors or advisory committees, limiting trustee exposure.
• Protectors and investment committees: Provide oversight and ESG insight.
• Variation or decanting: Allow assets to move into more flexible structures.
• Private trust companies: Offer more family control while retaining trustee governance.

Governance should be flexible enough to reflect changing standards and family priorities. Some families choose to ringfence a portion of trust assets for ESG investment, helping to balance purpose and prudence. Whatever the structure, trustees should focus on process: checking the trust deed, taking specialised advice, understanding how investment managers define and implement ESG, and engaging with beneficiaries to surface differing ethical views before they harden into disputes.

Praxis works closely with advisers to implement these structures in a way that reflects both the law and a family's long-term intentions.

The role of the next generation

Research shows that NextGen wealth holders plan to grow their impact investing exposure and see measurable outcomes beyond financial performance. They expect trustees and advisers to understand ESG and to involve them more directly through family councils and advisory roles.

Trustees who can meet these expectations and provide well-governed, values-aligned structures are better placed to support long-term trust and family unity.

Conclusion

Trustees must work within clear fiduciary limits, while supporting families who want their investments to reflect their wider values. As regulatory and legal thinking evolves, so too must the structures and approaches used to manage wealth.

Praxis brings deep expertise in structuring and cross-border administration. We help families and their advisers design solutions that meet today’s expectations and tomorrow’s challenges. With a strong understanding of how wealth, values and reputation intersect, we act with care, transparency and purpose.

To learn more, contact Tom Zierer or visit our private wealth services pages.

Sources:

nextgen-report.pdf

Please note that this article is intended to provide a general overview of the matters to which it relates. It is not intended as professional advice and should not be relied upon as such. Any engagement in respect of our professional services is subject to our standard terms and conditions of business and the provision of all necessary due diligence. © Praxis 2025