Fiduciary Duty, Social Conscience, and ESG Investing by a Trustee

55 Annual Heckerling Institute on Estate Planning (Tina Portando, ed., 2021)

64 Pages Posted: 10 Nov 2021

See all articles by Max M. Schanzenbach

Max M. Schanzenbach

Northwestern University - Pritzker School of Law

Robert H. Sitkoff

Harvard University - Harvard Law School; European Corporate Governance Institute (ECGI)

Date Written: October 18, 2021


This chapter, prepared for the 2021 Annual Heckerling Institute on Estate Planning, examines the law and economics of environmental, social, and governance (ESG) investing by a trustee.

Trustees of pensions, charities, and personal trusts invest tens of trillions of dollars of other people’s money subject to a sacred trust known in the law as fiduciary duty. Recently, these trustees have come under increasing pressure to use ESG factors in making investment decisions. ESG investing is common among investors of all stripes, but many trustees have resisted its use on the grounds that doing so may violate the fiduciary duty of loyalty. Under the “sole interest rule” of trust fiduciary law, a trustee must consider only the interests of the beneficiary. Accordingly, a trustee’s use of ESG factors, if motivated by the trustee’s own sense of ethics or to obtain collateral benefits for third parties, violates the duty of loyalty. On the other hand, some academics and investment professionals have argued that ESG investing can provide superior risk-adjusted returns. On this basis, some have even argued that ESG investing is required by the fiduciary duty of prudence. Against this backdrop of uncertainty, this chapter examines the law and economics of ESG investing by a trustee. We differentiate “collateral benefits” ESG from “risk-return” ESG, and we provide a balanced assessment of the theory and evidence about the possibility of persistent, enhanced returns from risk-return ESG.

We show that ESG investing is permissible under American trust fiduciary law if two conditions are satisfied: (1) the trustee reasonably concludes that ESG investing will benefit the beneficiary directly by improving risk-adjusted return; and (2) the trustee’s exclusive motive for ESG investing is to obtain this direct benefit. In light of the current theory and evidence on ESG investing, we accept that these conditions could be satisfied under the right circumstances, but we reject the claim that the duty of prudence either does or should require trustees to use ESG factors. We also consider how the duty of loyalty should apply to ESG investing by a trustee if such investing is authorized by the terms of a trust or the beneficiaries, or is consistent with a charity’s purpose, clarifying with an analogy to whether a distribution would be permissible under similar circumstances. We conclude that applying the sole interest rule (as tempered by authorization and charitable purpose) to ESG investing is normatively sound.

The chapter is based on Max M. Schanzenbach and Robert H. Sitkoff, Reconciling Fiduciary Duty and Social Conscience: The Law and Economics of ESG Investing by a Trustee, 72 Stanford Law Review 381 (2020), available at

Keywords: Trusts, trustee, prudent investor rule, ESG, environmental social and governance, law and economics, law and finance, trust, pension, charity, endowment, active investing, active shareholding, contrarian investment, SRI, socially responsible investment, ethical investing, sustainable investing

JEL Classification: K22, G11, G14, G18

Suggested Citation

Schanzenbach, Max Matthew and Sitkoff, Robert H., Fiduciary Duty, Social Conscience, and ESG Investing by a Trustee (October 18, 2021). 55 Annual Heckerling Institute on Estate Planning (Tina Portando, ed., 2021) , Available at SSRN:

Max Matthew Schanzenbach

Northwestern University - Pritzker School of Law ( email )

375 E. Chicago Ave
Chicago, IL 60611
United States

Robert H. Sitkoff (Contact Author)

Harvard University - Harvard Law School ( email )

1563 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

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