Environmental Or Social Investing Can Hit Regulatory Tripwires

Fiduciaries face extra scrutiny when they pursue socially conscious investments

ATLANTA, Aug. 25, 2022 /PRNewswire/ — Trustees and others who act as fiduciaries must exercise caution when implementing an ESG-focused investment strategy, CERTIFIED FINANCIAL PLANNER™ Anthony Criscuolo recently warned. Failing to do so could land them in legal hot water.

Palisades Hudson Financial Group strives to provide impartial information and advice that promotes clients’ financial security, the well-being of their loved ones, the satisfaction of their legal obligations and the achievement of their philanthropic goals. The firm is based on the principle that effective advice has to combine income taxes, estate planning, insurance, investment management and many other areas as seamlessly as possible. (PRNewsfoto/Palisades Hudson Financial Group LLC)

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Criscuolo, a senior client service manager at Palisades Hudson Financial Group LLC, flagged this potential investment pitfall in a new article (https://www.palisadeshudson.com/2022/07/an-esg-investing-hazard-for-fiduciaries/). While investing with environmental and social goals in mind is increasingly popular, those who invest on others’ behalf may need to prove that ESG strategies have financial benefits before pursuing them.

“The broad consensus is that fiduciary principles do not require trustees to consider ESG factors when selecting investments,” Criscuolo wrote. “However, trustees may consider ESG factors if, and only if, trustees expect better portfolio performance in the long run as a result.”

Because of laws designed to protect the interests of grantors and trust beneficiaries, even trustees who know that beneficiaries want them to pursue ESG strategies may not be able to do so without a sufficient legal framework. Working with an estate planning attorney who understands the goals of the relevant parties is critical.

Criscuolo also noted that business owners who provide a qualified retirement plan to employees should be careful when offering ESG mutual funds or other similar investments. Incorporating some ESG funds in a larger menu is probably fine, but it’s still wise to seek legal advice to avoid inadvertently breaking employment law.

Business owners and fiduciaries alike should stay cautious when pursuing ESG goals. “Trustees and managers subject to fiduciary duty should take special care to document their decisions if they incorporate ESG considerations into their investment strategy,” Crisucolo urged. “No one wants good investment intentions to lead to bad outcomes.”

In addition to the CFP® designation, Criscuolo is also an IRS Enrolled Agent. His advice has appeared in leading publications including Forbes, The Wall Street Journal, MarketWatch and Reuters. Criscuolo is a regular contributor to Palisades Hudson’s newsletter and the author of several chapters in the firm’s two books, “The High Achiever’s Guide to Wealth” and “Looking Ahead: Life, Family, Wealth and Business After 55,” both available on Amazon.

Contact: Amy Laburda, amy@palisadeshudson.com


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