The concept of ‘fiduciary responsibility’ has a long intellectual history, says Youngdahl, based on general well-being and trust. “It basically means that the trustees or ones who handle money do the best they can for the beneficiaries of the money, and do it in a holistic way,” he says. This is accompanied by certain foundational ideas about the relationship: “The trustee is loyal to the beneficiaries, is impartial, employs transparency – it’s just common sense,” he says.
The problem in the US, he says, is a conservative legal culture.
“Many lawyers in the U.S. who advise trustees – well, we call them ‘Dr. No’ because every time a trustee wants to do something in terms of sustainability or social responsibility, the lawyers says ‘No, we cannot do that.’”
While it is a barrier to ESG issues gaining ground in the area of US pension funds, it could be easily dealt with legally, says Youngdahl. “There is very little law that provides this conservative view of fiduciary duty, very few legal cases that uphold it. It’s really a question of lawyers. If the lawyers who represent the funds have the courage to do what their trustees want to do in terms of viewing fiduciary duty as a way to do the best job overall for the beneficiaries.”
References
This video interview was recorded in New York City on 13 December 2011 during the ESG USA 2011 Conference “Investing for a Sustainable Economy,” organized by the Responsible Investor in association with Bloomberg.
This article may be reproduced according to our terms of use with attribution (and link, if online) to fsinsight.org. To be cited as: “Conservative US legal culture slows progress of ESG in pension funds”, Jay Youngdahl, fsinsight.org, January 25, 2012.