In Singapore, the Monetary Authority of Singapore (MAS) released its Sustainability Report 2021/2022, in which MAS revealed that it had worked with the Singapore Exchange (SGX) to (1) require all SGX-listed entities to provide climate reporting on a ‘comply or explain’ basis for financial years starting on or after 1 January 2022; and (2) implement mandatory climate reporting, with issuers in industries identified by the Task Force on Climate-Related Financial Disclosures to be progressively subject to mandatory climate reporting from the financial year 2023. MAS estimates that by 2025, mandatory climate reporting will cover approximately 78 per cent of SGX’s listed market capitalisation.[i]
While Singapore is progressively rolling-out ESG-forward regulatory measures, she remains some steps behind the global trend towards sustainability-focused disclosures by financial institutions, particularly with respect to asset managers and investment products. As of May 2022, MAS reported that at a product-level, most asset managers still confined sustainability-related disclosures to funds marketed to be “sustainable” or had otherwise marketed themselves as having ESG considerations integrated within their investment processes.[ii] This stands in contrast to, for example, the imminent rollout of the ‘UK Sustainability Disclosure Requirements’ (UK SDR), which are likely to regulate and make mandatory, inter alia, sustainable investment labels and detailed disclosures, starting from pre-contractual disclosures contained in fund prospectuses, to ongoing sustainability performance indicators.[iii]
More pertinently, the speed at which financial institutions and trustees will have to accommodate, adapt to and review the content of ESG-related disclosures, duties and concerns is not entirely in the hands of governmental regulatory bodies. The more astute trustee will note that in recent years, the seeking of ESG assurances has no longer been limited to just listed companies (for whom regulatory disclosure obligations are more concrete), but that even non-public companies have begun to actively seek and obtain third-party assurances and independent verifications of their non-financial sustainability reports,[iv] regardless of the fact that the majority of ESG disclosure regimes do not yet target these organisations.
Separately, cautious trustees will concern themselves with the often-amorphous nature of discussions surrounding ESG-related disclosure. On occasion, the discussions surrounding ESG-bent measures have been biased towards concerns regarding the sustainability of investments in the context of climate change, carbon emissions and pollution. It is in this regard that the UK’s Financial Conduct Authority’s UK SDR Consultation Paper dated October 2022 has proposed anti-greenwashing rules and naming convention rules for investment products to be released into the market. However, ESG concerns arguably travel much further – the ‘social’ and ‘governance’ aspects of ESG initiatives may include the implementation of diversity measures in hiring, corporate responsibility initiatives, or even guarding against anti-competitive market practices, and more transparency in tax disclosures.[v]
It seems impossible for both institutional and independent trustees to escape the need to properly situate themselves and their fiduciary obligations in view of the ever-increasing ESG-motivated plethora of labels, forms and aspects of disclosure relating to companies, investment products, and funds. Beyond this, trustees will also likely wonder how they can properly balance the ever-increasing mass of environmental, social and governance interests that ESG initiatives are intended to protect, against their more traditional concern of maximising financial return for their beneficiaries. In this regard, some guidance may be gleaned from the case of Butler-Sloss and others v Charity Commission for England and Wales and another  EWHC 974 (Ch) (“Butler-Sloss”).
The Relegation Of Maximised Financial Returns?
Butler-Sloss was decided in the English High Court (Chancery Division) and addressed the question of what could be considered a responsible investment in the context of a charitable trust. The trustees of two charities (whose principal purposes were environmental protection and improvement, and the relief of poverty), brought an application to Court requesting a declaration which would approve their intended investment policy of excluding all investments which are not aligned with the Paris Climate Agreement signed on 22 April 2016, under the United Nations Framework Convention on Climate Change (the Paris Agreement).[vi] The purpose was to limit global warming by, inter alia, reducing greenhouse gas emissions. The trustees’ approach, however, would exclude “over half of publicly traded companies and many commercially available investment funds”.[vii]
The Court, in considering this issue, summarised the law in relation to charity trustees taking into account non-financial considerations when exercising their powers of investment. For our purposes, the Court’s views in these respects were particularly relevant:[viii]
In enunciating these principles, the Court also considered the decision reached in Cowan v Scargill  Ch 270, where the Court had to decide if the trustees of the mineworkers pension scheme who were appointed by the National Union of Mineworkers were acting in breach of their duties in blocking an investment plan which included an increase in overseas investment and investments in energy companies that were in direct competition with coal. The pension scheme trust, unlike the one in Butler-Sloss, was not a charitable one. There, the Court held that because the trust was created to provide financial benefits, the power of investment must be exercised to yield the best return for the beneficiaries, and that thus the intended exclusion was not justified.
However, even there, the Court qualified its view to say that while the trustees’ paramount concern must be the beneficiaries’ financial benefit, there may be non-financial benefits that beneficiaries may wish to obtain even if they might as a result receive lesser financial benefits.[ix]
Read in the context of the modern distillation of trustees’ duties by the Court in Butler-Sloss, it appears possible that the English Courts are of the view that even the trustee of a non-charitable outfit can be expected to adopt a reasoned ‘proportionate investment policy’ which could consider non-financial motivations, so long as these are balanced, and ultimately circumscribed by the expressed purposes of the trust.
What then is the way forward? While it may appear convenient (and even prudent) for trustees to seek to include clauses which exclude non-financial considerations and the deluge of multi-disciplinary concerns which ESG measures bring, to do so wholesale would be short-sighted. As pro-ESG regulations and disclosures gain steam, a trustee seeking to bury its head in the sand in the interests of protecting itself from liability will only be left behind. Rather, the question is how the modern trustee, (especially institutional trustees), can both reasonably and sophisticatedly set out, as part of the terms of the trust, the framework within which their duties are to operate.
The first signs of these considerations have already surfaced in Butler-Sloss, where the Court evaluated the trustees’ approach there to exclude all investments which are not aligned with the Paris Climate Agreement. The Court agreed that the trustees had “exercised their powers of investment properly and lawfully, having taken account of all relevant factors and not taken into account irrelevant factors,” noting in particular that the trustees had sufficiently balanced their objective of making an appreciable effort towards reducing greenhouse gas omissions with any financial detriment that may be suffered as a result.[x] Crucially, the trustees appear to have been up-front about potential short-term financial detriment of their intended investment scheme.[xi]
If the spirit behind the Court’s decision in Butler-Sloss continues to permeate the Commonwealth Courts’ approach to non-financial, ESG-forward considerations even in non-charitable trusts, then it goes without saying that clear definition of ESG investment in the investment policy and the ambit of the powers to invest in ESG-centric products based on informed communication, would be a good starting point.
As ESG-related measures continue to be implemented, and more data becomes available to trustees to properly evaluate the links between ESG-focused investment strategies and their impact on the financial viability of a company, fund or other investment vehicle, it will become increasingly unsatisfactory for trustees to ignore incorporating ESG-related metrics into their overall considerations and exercise of investment powers. Rather, the search for a reasoned and proportionate investment policy must begin soon, if not now. Trustees need not necessarily overwhelm themselves with concerns beyond their expertise, and may consider an additional layer of insulation by incorporating provisions into the terms of the trust which may allow them to delegate certain aspects of such evaluations to professionals and/or analysts who may be more experienced in ESG-related initiatives and associated specialised knowledge.
The trustee who is able to develop and incorporate these concerns into the terms of the trust will not only be able to manage their liabilities with respect to these new considerations better, but also earn the confidence of other forward-looking settlors and beneficiaries.
[i] https://www.mas.gov.sg/-/media/mas-media-library/publications/sustainability-report/2022/mas-sustainability-report-2021_2022.pdf; PDF page 14
[ii] https://www.mas.gov.sg/-/media/mas-media-library/publications/monographs-or-information-paper/bd/2022/information-paper-on-environmental-risk-management-asset-managers.pdf; PDF page 37
[iii] https://www.fca.org.uk/publication/consultation/cp22-20.pdf; PDF page 5
[v] See for example one of the ‘B Team’s’ stated causes: “Advancing Responsible Tax Practice”, which endorses an approach of transparency with respect to corporations’ tax disclosures. The B Team is a coalition of prominent business leaders who are working to “redefine the culture of accountability in business, for our companies, communities and future generations, by creating and cascading new norms of corporate leadership that can build a better world” (see https://bteam.org/; in particular https://bteam.org/our-thinking/news/responsible-tax)
[vi] Butler-Sloss at  to 
[vii] Butler-Sloss at 
[viii] Butler-Sloss at 
[ix] Butler-Sloss at 
[x] Butler-Sloss at  to 
[xi] Butler-Sloss at 
Partner, Specialist & Private Client Disputes. Josephine’s litigation practice includes criminal law, trust/ estate and family law. She has also acted for businesses and individuals in matters relating to the Income Tax Act, Goods and Services Tax Act and Employment of Foreign Manpower Act. She has also acted for and advised parties involved in disputes under the Companies Act, shareholders’ disputes, restraint of trade. Josephine is an Accredited Mediator with Singapore Mediation Center. She is currently an Independent Director in Ho Bee Land Limited, a Director in Ho Bee Foundation, a Director of Jesuit Refugee Service (Singapore) Pte Ltd and Chairperson and Director of Dr Oon Chiew Seng Trust Limited. Josephine graduated from the University of London. She is admitted to the English Bar (Middle Temple) and to the Singapore Bar.
Samuel is a Senior Associate in WongPartnership LLP’s Disputes Group. Samuel’s main areas of practice are in commercial litigation, white-collar crime, and construction/projects disputes, and he has appeared with his colleagues in all levels of the Supreme Court of Singapore. Samuel was admitted to the Singapore Bar in 2020, having graduated from the National University of Singapore in 2019, appearing on the Dean’s List in his final academic year.