Fiduciary duty and climate change: adding value in the longer term 

Investors and companies in the US have applied an approach to climate investing primarily focused on shorter-term financial returns, especially compared to the more stakeholder-focused approach of their peers in the European Union. We see this in the rush to invest in renewable energies after the passage of the US Inflation Reduction Act and its associated subsidies. Concerns about short-term profits are also evident in the political discourse that attempts to vilify ESG investing strategies.  

While differences in social norms and dependencies on fossil fuel-based economies may underlie these concerns, an often-overlooked reason for this discrepancy stems from the complex and diverse legal structures that define the responsibilities of capital owners and managers in the US – and a lack of understanding about what they do and don’t allow when it comes to investing other people’s money. Specifically, these legal structures create significant responsibilities…