Climate change and trustees: powers, duties, responsibilities and liabilities

Overview

https://research.qut.edu.au/achlr/https://research.qut.edu.au/achlr/

Trustees have a duty to act in the best interests of beneficiaries. In particular, it has been held that “(w)hen the purpose of the trust is to provide financial benefits for the beneficiaries, as is usually the case, the best interests of the beneficiaries are normally their best financial interests.” (Cowan v Scargill [1985] 1 Ch 270 at 286 per Megarry VC) This may require consideration of not only the economic well-being of the trust fund more generally, but also the personal welfare of the individual beneficiaries.

There is increasing evidence that ethical investing may be a sound investment and risk management strategy in a diversified investment portfolio, which may satisfy the best interests test. For example, environmental, social and governance (‘ESG’) issues could have an impact on financial returns and, therefore, taking them into account may fall within the ambit of trustees’ fiduciary obligations. Separately, there are risks that where certain trustees claim investments fulfil ESG goals when they do not there may be a breach of their duties as directors: Australian Securities and Investments Commission v Cassimatis (No 8) (2016) FCA 1023. This is a very topical area of law in light of the Federal Court’s recent judgement upholding ASIC’s greenwashing claims that Active Super made various misleading representations in its marketing materials concerning its ESG credentials relating to trust investments: Australian Securities and Investments Commission v LGSS Pty Ltd [2024] FCA 587.

The purpose of this project is to review the literature and all judicially resolved cases about ethical investment and greenwashing by trustees decided in superior Courts in Australia and the United Kingdom since Cowan v Scargill was decided in 1985 to understand:

a) the nature of this type of litigation
b) the legal, economic, social and other issues raised
c) who brings actions in relation to ethical investing, and why they do so
d) the outcomes of the cases, including remedies and other orders made.

Research Questions

1. What are the powers, duties, responsibilities and liabilities of trustees relating to ethical investing (‘their role’)?
2. What is ethical investing?
3. Does ethical investing necessarily differ from investing for profit, and if so how?
4. To what extent can and should trustees (for example trustees of private trusts, superannuation funds and/or charitable trusts) engage in ethical investing in the exercise of their role without being in breach of trust?
5. To the extent applicable, what duties do trustees have not to ‘greenwash’ in carrying out their role?

Research activities

Key tasks may include:

• conducting a literature review of legal, economic, social and other issues relating to ethical investing, including ESG credentials and greenwashing, and SDGs
• mapping comparative Trustee Investment legislation across Australia (including proposed law reform of relevant provisions in the Queensland Trusts Bill 2024 (Bill) which is intended to replace the Trusts Act 1973 (Qld) and any other relevant reform proposals)
• review of relevant provisions in superannuation legislation
• searching data bases to locate publicly available cases relating to ethical investing and associated powers, duties and liabilities of trustees in Australia and the United Kingdom since Cowan v Scargill was decided in 1985
• conducting a review of novel cases that may suggest trustees have obligations to not greenwash their investment activities.

The primary focus of this project is to examine all publicly available decisions relating to ethical investing, associated misconduct and powers, duties and liabilities of trustees in Australia and the United Kingdom since Cowan v Scargill was decided in 1985 to:

• Identify, save and categorise cases where litigation was brought in an Australian or United Kingdom superior Court relating to ethical investing by trustees.
• Analyse the decisions doctrinally and qualitatively. Doctrinally in terms of the nature of litigation, legal issues raised, relevant legislation and regulations, outcomes and remedies etc. Qualitatively as to what comments the Courts have made about matters such as what ethical investing is; relevant legal, economic and social policy issues and arguments; settlors’, trustees’ and beneficiaries’ understanding of roles, obligations and responsibilities; the extent to which the trust deed and/or settlors and beneficiaries can authorise ethical investing; connections between their roles and ESG credentials and SDGs; the need for education and/or law reform proposals etc.
• Write a report and/or draft peer-reviewed paper (co-authored with the supervisor(s)) for a high ranking journal describing and explaining the findings and implications about trustees powers and responsibilities relating to ethical investing.

Outcomes

Outcomes may include:

• literature review
• legislative mapping
• case law analysis
• report and/or draft article for publication, co-authored with academic supervisor(s).

Skills and experience

Law students in later years of study, who have completed equity and trusts, commercial and personal property law, corporate law and succession law, will be better placed to undertake this project.

Keywords

• environmental, social and governance (ESG) credentials
• sustainable development goals (SDG) including SDG 13 (climate control)
• SDG 3 (good health and wellbeing)
• trustees’ duties, powers and responsibilities
• trustees’ liability
• trustee investment
• ethical investment
• greenwashing
• climate change

Contact

Contact the supervisor, Professor Tina Cockburn, for more information