The growing interest in sustainable investing is raising a question among some trust and foundation managers: Can they use sustainable investing and still meet their fiduciary duty to maximize returns?

Amanda DiChello, a leading trust and estates attorney in the private client services practice of Cozen O’Connor’s, a law firm based in Philadelphia, said the issue is coming up more frequently as the interest in environmental, sustainable and corporate governance (ESG) investing; socially responsible investing (SRI) and impact investing grows.

“A trustee’s sole obligation is to focus on returns. How does ESG investing fit into that? It is a question trustees are struggling with,” she said in a recent interview. “For instance, what if oil and gas prices are high? The trust or foundation should be invested in it, but the family that established the trust may be uncomfortable with those investments.”

DiChello said the ultra-high-net-worth families she deals with are becoming more interested in these questions. She had conversations with four clients about it in the first quarter of this year alone. She has also been approached by trustees concerned about their fiduciary duty to maximize returns and about being held liable if they fail to do that because they are using ESG or SRI guidelines.

The law firm has not started drafting language into standard trust documents about alleviating the liability for trustees, but it is being considered. In the meantime, DiChello said it is important to get an agreement from the family in writing about what type of investments they want to avoid or ones they want to support.

The trustee needs to seek preferred investments that are equally profitable to traditional investments, which can be done in part by diversifying the portfolio in the ESG space, she said. Numerous studies in recent years have shown returns for ESG and SRI investments meet or even exceed traditional investments.

In one case, a Cozen O’Connor client was interested in supporting advancements in medicine. The portfolio can accommodate that interest as long as it is appropriately diversified with investments in different areas of medicine and is balanced with acceptable investments in other fields, DiChello said.

Part of the interest in sustainable investing for ultra-high-net-worth families is being driven by the younger generations.

“The parents and grandparents are glad to see this because it engages the younger generation in the family legacy. The message we are sending is that sustainable investing can be done within the letter of the law” while protecting the trustees from liability, DiChello added.