To what extent should a trustee consider ethics and so-called socially responsible investment (SRI) in the context of a trust? Particularly if we are just considering private family trusts as compared with public charities, the answer might well be ‘Not a lot, but if you must, take great care’. After all, trustees have a strict and irreducible requirement to act in the best interests of the beneficiaries. ‘Best’ in this context must surely mean best financial interests and not some other definition.

In the case of Cowan v Scargill (1985) Megarry VC said ‘In considering what investments to make, trustees must put aside their own personal views and interests. Trustees may have strongly held social or political views. They may be firmly opposed to any investment in South Africa or other countries, or they may object to any form of investment in companies concerned with alcohol, tobacco, armaments or many other things. In the conduct of their own affairs, of course, they are free to abstain from making any such investments. Yet, under a trust, if investments of this type would be more beneficial to the beneficiaries than other investments, the trustees must not refrain from making the investments by reason of the views that they hold’. In Martin v City of Edinburgh District Council (1989) the policy of disposing in South African investments (just because they were South African and not poor investments) was found to be a breach of trust.

If the beneficiaries, all being sui juris, have the same strong moral views which they would like extending to the trust’s investment policy, if the trustees are minded to comply, it may well be wise to obtain their prior written consent in order to avoid a possible action for breach in the future. In addition, having a specifically worded exculpation clause relating to the matter might be a very good idea indeed.

If, for instance, the trustees are being asked not to invest in companies whose products involve the use of animals for experimentation, trustees may consider using a specialist research service to seek out those companies for exclusion. After all, by looking at their annual reports or websites they are hardly likely to admit to such practices. However, the additional cost of this research must not be overlooked.

Trustees considering an ethical investment policy should certainly take careful advice from their investment managers who may well find ways of presenting a diversified and balanced portfolio which nonetheless satisfies the wishes of perhaps the settlor and/or beneficiaries. There are available ‘ethical indexes’, which go some way to demonstrating that investing according to ethical and environmental criteria does not necessarily lead to poor financial performance.

Trustees must do everything they can do in order to protect and if possible enhance the value of the trust fund

When it comes to general business practices, trustees must, as we know, do everything they can do in order to protect and if possible enhance the value of the trust fund. In Buttle v Saunders (1950) the trustees were held to have a duty to ‘gazump’ over a property transaction. That is to accept a higher offer to that which they had previously verbally agreed to, but was not yet legally binding. Trustees are not likely to be thanked for being ‘gentlemen’ or ‘doing the right thing’. In fact, they should act more like hard-headed businessmen as opposed to kindly guardians.

In the case of public or charitable trusts, the practical position may be rather different. There will not be beneficiaries who can bring an action against the trustees for adopting an ethical or socially responsible investment policy. One might imagine that potential donors may be more disposed to give to a charity that endorses SRI. Despite that, in October 2004 the trustees of the Rotary Foundation agreed the wording of a position paper on the subject of why they could not adopt SRI. The reasons included ‘difficulty in agreeing on what constitutes SRI, marginal impact or benefit to society, much smaller universe of investment options from which to choose, thereby potentially limiting investment return objectives, costly implementation of the program and additional resources required to monitor investment programme to ensure compliance’.

Which all goes to show that perhaps ethics is a subject best left to non-trustees!