GreenBiz.com, 20 March 2006.
Long-term investment returns are driven primarily by the performance of innovative, well-managed companies that are themselves dependent on the health of ecological systems and human societies. Institutional investors such as pension funds and university endowments are controlled by investment fiduciaries -- elected or appointed officials who supervise those who have direct control of the organization's investment assets.
The conventional definition of fiduciary duty has often excluded socially responsible investing -- until now. On the face of it, a fiduciary's primary duty is "to maximize returns," but the courts do not necessarily agree. All investments carry some risk of loss beyond the control of the investment manager, so a purely return-based standard is unreasonable.
Since 1830, the courts have relied on some version of the "prudent man rule" which says that investment fiduciaries should govern affairs according to the prevailing standard of "how men of prudence, discretion, and intelligence manage their own affairs." As risks and markets have changed over the years, and as new investment strategies and more sophisticated research techniques have been developed, the common understanding of how a "prudent man" might act is evolving.
Visit the GreenBiz website to read the original article by Steve Schueth at the Responsible Investment Forum.