ESG investing in offshore trusts: Unlocking flexibility in the BVI and Cayman Islands

These jurisdictions stand out for their ability to offer flexibility and innovation while operating within the trusted framework of English-style common law. Unfortunately, we’ve seen onshore advisors attempt to apply rigid, onshore-style approaches to offshore trusts where no tax requirement exists to do so. This can lead to inefficiencies, which is why we want to explore innovative approaches to ESG investing: ones that can align seamlessly with offshore trust structures such as BVI’s VISTA and Cayman’s STAR regimes.

Here’s how the BVI and Cayman Islands offer both trustees and families the tools they need to implement ESG investments effectively.

One question holds back many professional trustees tasked with ESG investing for beneficiaries—how can trustees meet their duties as “prudent investors” while pursuing ESG objectives that may not always lead to the highest financial returns? The concern often lies in hindsight. What happens if ESG-focussed decisions turn out to be less profitable?

Fortunately, there are two effective frameworks that sidestep this issue: delegating powers through reserved structures and setting out explicit ESG trust purposes.

1. Allowing families to take the lead with reserved powers

Offshore trust legislation allows trustees to delegate investment and management responsibilities, empowering families to directly pursue ESG investments. Here’s how this can work:

• VISTA Trusts (BVI): The Virgin Islands Special Trusts Act (VISTA) offers an innovative solution to relinquish trusteeship over certain investment decisions. Through VISTA, trustees can delegate their investment and management duties to directors of an underlying BVI company holding trust assets, while distribution powers remain with the trustee. This structure allows family members to implement ESG strategies without continuous trustee oversight.
• Customised reserved powers provisions: For even greater flexibility, bespoke drafting can establish mechanisms like investment committees (often composed of family members), designated asset-holding vehicles, or specific guidance over investment directions. For example, portions of the trust fund—such as those tailored to ESG investments—can operate under reserved powers, while the rest remains traditionally managed.
• Partial delegation: It’s feasible to apply reserved powers over only a segment of the trust. For instance, ESG investments could be confined to assets held by a BVI company, while other holdings, such as a Delaware company for traditional investments, operate outside this framework. Trigger mechanisms can even turn reserved powers on or off as circumstances evolve.

Importantly, this approach adapts to global tax systems. While debates around VISTA persist in some jurisdictions (notably the UK), global families outside such jurisdictions often find VISTA to be a well-regarded, statute-backed solution.

2. Making ESG a core purpose of the trust

Alternatively, ESG objectives can be enshrined directly within the trust’s purposes. Purpose-driven trusts align remarkably well with ESG goals, combining commercial and philanthropic ambitions.

• Pure Purpose Trusts: With explicit ESG aims, purpose trusts can define objectives such as advancing corporate responsibility or supporting sustainable projects. While these trusts may dedicate returns to reinvestment or philanthropic ventures, their deeds often include mechanisms for reintegrating assets into the family’s broader structure when needed.
• Cayman STAR Trusts: Unique to the Cayman Islands, STAR trusts allow a hybrid approach by combining traditional beneficiaries with specific purposes. STAR trusts are ideal for families incorporating ESG investment strategies. Provisions such as following family ESG preferences, integrating reserved powers, and shifting enforcement rights to an enforcer (instead of beneficiaries) offer unparalleled flexibility and minimise the potential for future disputes over ESG approaches.
• Offshore Charitable Trusts: While less common due to the absence of tax registration numbers in the BVI and Cayman Islands, philanthropic families (particularly from Asia and Latin America) sometimes opt to include ESG-focussed charitable trusts as part of their dynasty planning. Structures often involve a Private Trust Company (PTC) acting across multiple trusts, bringing the family branches together for coordinated ESG efforts.

PTCs offer another powerful avenue for families aiming to retain active roles in trust management. However, many families prefer the security of professional trustees for asset protection and other benefits. Even so, innovative offshore trust solutions like VISTA and STAR enable families to pursue impactful ESG objectives while maintaining professional oversight.

At Harneys, we guide families and trustees through innovative offshore trust solutions like VISTA and STAR. If you're exploring ESG investing within offshore structures, feel free to reach out to the authors or your usual Harneys contact—we’d be happy to help you navigate your options.