7 minute read
Trust & Company
6.3 Trust & Company
Guernsey is home to 150 regulated trust companies, servicing a range of clients from large corporates to private individuals. This sector can play a key role in supporting the just transition through its role in providing specialist advisory services and allocating capital on behalf of private wealth towards sustainability objectives. The baby boomer generation holds wealth estimated to be as high as $30 to $40 trillion, much of which is set to transfer to millennial and Gen X children over the coming decades.62 Green and sustainable investing is becoming more and more important to these younger generations, hence developing such solutions will become increasingly central to this sector.63
What role can it play?
Innovation in trust & company structures: leverage Guernsey’s strong track record for innovation and collaboration to develop and share new templates that support and encourage the integration of sustainability objectives into trust structures. For example, development of ESG friendly trust deeds, or design of a corporate entity with sustainability integrated into its articles of association. Guernsey Green Finance has already provided some examples, summarised in the section below.
Active asset ownership: Trustees can engage with high-net-worth clients and beneficiaries to understand longer-term risks and impacts associated with climate and ESG risks on the value of their investments, and help them to integrate these into trust objectives, letters of wishes and investment mandates with fund managers.
Active engagement with asset managers: alongside proactively engaging with asset managers to understand how they deliver on these objectives and encourage them to do more, where required. Build on Guernsey’s strong reputation for local collaboration and engagement to support this.
Bespoke solutions and tailored advice: Guernsey’s advisors are well practiced in providing specialist advice and solutions tailored to a diverse range of private and institutional clients. Guernsey can build on this to tradition to advise clients on specific, specialised trust structures and investment vehicles to protect the long-term value of their assets or investments. This includes having rich, meaningful dialogues to raise awareness and generate demand for sustainable investing amongst their client base.
62 CNBC, May 2021, Millennials spurred growth in ESG investing (cnbc.com)
What has been done to date?
Engagement with beneficiaries: engagement with beneficiaries indicates that families are starting to think about pivoting their traditional investment portfolios to those that have some form of sustainability objectives within them. Whilst this is impossible to measure within such a private sector, anecdotal evidence suggests that amongst Guernsey’s clientele, demand from beneficiaries for sustainable wealth solutions is on the increase.
Education and awareness raising across the sector: Guernsey Green Finance has developed educational materials and guides to promote awareness and understanding around ESG related issues relevant to private trusts and companies, including redefining fiduciary duty within the current context to associate environmental, social and government themes with long-term value protection and creation, and a guide to philanthropic investing.64
Specific guidance on structuring trust deeds: Guernsey Green Finance has also developed specific guidance on how to incorporate sustainable investment objectives into the design of a trust deed, from which some examples have been drawn below:
Powers of Investment: explicit reference to trustees having the power to invest in Sustainable Investments, or preference investing in ESG related endeavours before any other funds/asset classes
Consultation by Trustees: trustees to consult a professional service or person for advice on socially responsible investing
Delegation by Trustees: trustee to delegate the power of investments to an investment agent/ advisor with the requirement to always consider socially responsible investments or sustainable investments before all other investments
Wishes of the Settlor: explicit reference to settlors wishes for sustainable or socially responsible investments to be taken into account by the Trustee before investing.65
64 WE ARE GUERNSEY, Family offices financing sustainability; encouraging demand and transparency in climate finance family-officesfinancing-sustainability.pdf (weareguernsey.com), We Are Guernsey, Fiduciary duty in the 21 century: Understanding Guernsey’s position, October 2021, and We Are Guernsey, Effective Philanthropy: trends and structures in global giving, April 2022
What are the key levers the sector has to pull?
Meeting net zero for asset managers requires action across the firm’s own operations and supply chain, as well as the investment portfolios it manages on behalf of its clients.
Reduce operational Scope 1, 2 and 3
Emissions associated with your firm’s offices, branches, company-owned vehicles, business travel
Understand the emissions associated with your supply chain, as well as any wider ESG risks with key suppliers. Consider key tools e.g. ECO Vadis to monitor this.
Develop a clear plan with near term milestones for how you will reduce emissions Measure and disclose portfolio emissions in line with industry standards (PCAF), or develop solutions to support measurement of portfolio emissions
Encourage reduction of ‘financed emissions’ across your portfolio or client base through engagement, influence and incentives to drive emissions reductions in the wider economy
Stewardship & Engagement – vote for ESG resolutions in line with net zero and just transition goals
Consider new asset classes, markets and products to enable you to invest in a holistic range of just transition objectives
A set of holistic actions applicable to all firms are described in section 5 above. To steer towards net zero goals and facilitate a just transition in the trust and company sector, a combination of strategies will be required across:
Sustainable Operations: Developing a clear strategy and timeline to reduce emissions across your operating model, for example, through renewable energy contracts, electric vehicles for employees, and improved waste and recycling processes; invest in carbon removals via credible initiatives, leveraging the Oxford Principles
Sustainable Trustee/Director: using your role and influence as a trustee or corporate director to help beneficiaries and/or shareholders reassess their objectives with respect to sustainability or ESG themes, and integrate these into the design of the trust deed, or the articles of association for a company
Engage with clients and beneficiaries to better understand their goals in relation to wider just transition risks and opportunities, and help advise them around these risks and the best ways to manage them where they are less familiar
Work with investment managers to integrate sustainability objectives into investment mandates and understand how they discharge these, and use their role and influence to deliver on sustainability objectives
Integrate explicit clauses and structures into the design of the trust or company, if appropriate, to provide a clearer legal basis on which to direct funds towards sustainability objectives, for example, through explicit consideration of impact on wider stakeholders, people and planet, beyond shareholders and/or beneficiaries
What are the key challenges and risks?
There are some key challenges and risks which are unique to this sector:
Theme
Lack of client demand/ awareness Risk
Perception that returns on sustainable investments are not comparable to mainstream investments Mitigation
Evidence of stable value creation through sustainable investments to aid education
Lack of transparency due to limited regulatory and reporting requirements Limited requirement for disclosures creates lack of transparency around impact of investment decisions Request ESG data from investment managers and feed this into reporting for beneficiaries; voluntary disclosures can provide reputational/strategic gains
Limited specialist knowledge Risk of greenwashing accusations is greater where sustainability services and advice is offered by non-specialists Ensure trustees are appropriately skilled on ESG and climate investing (e.g. via CFA courses) to be able to educate and support clients with sustainability objectives
Fiduciary duties and the role of trustees Lack of clarity or outdated perceptions around the role of the trustee with regards to value creation on behalf of beneficiaries Myth busting perceived conflict with fiduciary duties, if needed, supported by specific inclusions within the Trust’s legal structure
Wider Social and Economic Context Wider social and economic impacts of exiting investments in key sectors, given current instability in the market and the global economy Work with beneficiaries to establish a holistic set of ESG criteria and framework to balance risk across these themes.
Case Study: Climate Portfolio for a Family Trust
Trust and company client success stories are less commonly available in the public domain, due to the sensitive and often confidential nature of their arrangements. The below example remains anonymised to protect the trust’s confidentiality:
Climate Portfolio for a Family Trust: Next generation beneficiaries of a family trust wished to create a positive impact on the climate crises through impact investing. The Trustees appointed an impact advisor, who after extensive research presented various options which helped form the multi-million-dollar portfolio which comprised of green funds, agricultural funds and alternative energy funds.
