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Socially responsible investment in market downturns : implications for the fiduciary responsibilities of investment fund trustees

Copp, Richard, Kremmer, Michael , & Roca, Eduardo (2010) Socially responsible investment in market downturns : implications for the fiduciary responsibilities of investment fund trustees. Griffith Law Review, 19(1), pp. 86-104.

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    Abstract

    This paper investigates whether Socially Responsible Investment (SRI) is more or less sensitive to market downturns than conventional investment, and examines the legal implications for fund managers and trustees. Using a market model methodology, we find that over the past 15 years, the beta risk of SRI, both in Australia and internationally, increased more than that of conventional investment during economic downturns. This implies that companies acting as fund trustees, managed investment schemes and traditional institutional fund managers risk breaching their fiduciary or statutory duties if they go long - or remain long - in SRI funds during market downturns, unless perhaps relevant legislation is reformed. If reform is viewed as desirable, possible reforms could include explicitly overriding the common law to allow all traditional funds to invest in SRI; granting immunity to directors of trustee companies from potential personal liability under sections 197 or 588G et seq of the Corporations Act; allowing companies acting as trustees, managed investment schemes and traditional institutional fund managers and trustees to invest in SRI without triggering a substantial capital gains tax liability through trust resettlement; tax concessions for SRI (eg. introducing a 150% tax deduction or investment allowance for SRI); and allowing SRI sub-funds to obtain “deductible gift recipient” status or the equivalent from relevant taxation authorities. The research is important and original insofar as the assessment of risk in SRIs during market downturns is an area which has hitherto not been subjected to rigorous empirical investigation, despite its serious legal implications.

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    ID Code: 34485
    Item Type: Journal Article
    Keywords: SRI, Market model, GARCH, Trust fund, Fiduciary duties, Market downturn, Australia
    ISSN: 1038-3441
    Subjects: Australian and New Zealand Standard Research Classification > LAW AND LEGAL STUDIES (180000) > LAW (180100) > Equity and Trusts Law (180112)
    Divisions: Current > QUT Faculties and Divisions > QUT Business School
    Current > Schools > School of Accountancy
    Copyright Owner: Copyright 2010 Griffith University
    Deposited On: 16 Sep 2010 12:23
    Last Modified: 01 Mar 2012 00:19

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