Can fiduciary duty help unlock impact investing?
The Canada Investment Summit 2026 put capital allocation at the centre of Canada’s economic agenda. Meeting the country’s most significant challenges, including climate change and housing affordability, will require substantial investment. Increasingly, investors are looking for opportunities that can deliver both long-term financial returns and broader societal benefits.
As attention turns from Summit announcements to actual implementation, an important question remains: what enables capital to move, and what causes it to remain stuck? One often-overlooked barrier is uncertainty about fiduciary duty.
Too often, fiduciary duty is framed as requiring investors to separate financial returns from environmental and social considerations. When impact investments are proposed, questions quickly arise: Are fiduciaries permitted to pursue impact? How far can they go? Could they be criticized for allowing environmental or social objectives to influence investment decisions?
These are important questions. However, fiduciary duty should be the starting point for analysis, not the end of the conversation.
What fiduciary duty actually requires
Fiduciaries manage other people’s money. They are required to act loyally, prudently, and in the interests of beneficiaries. They must exercise care, diligence, and skill, comply with governing documents, and make informed decisions.
Yet fiduciary duty is sometimes interpreted in ways that do not reflect Canadian law.
A common misconception is that fiduciaries must maximize short-term returns above all else while treating environmental and social considerations as separate from investment decision-making. This view often appears in popular culture and can find its way into boardrooms and investment practices.
Canadian fiduciary law does not require investors to ignore the broader economic, environmental, and social conditions that influence long-term investment outcomes. Nor does it require them to be indifferent to the world in which beneficiaries will ultimately live and retire.
Rather, fiduciary duty requires informed decision-making. It requires fiduciaries to consider material risks and opportunities that may affect the fund and its beneficiaries. For many institutional investors, those interests are inherently long term.
Pension funds, for example, are not investing simply for the next quarter. They are investing to meet obligations that may extend decades into the future. Their beneficiaries will retire into an economy increasingly shaped by climate change, biodiversity loss, demographic shifts, technological disruption, and growing inequality. These realities can affect asset values, infrastructure resilience, supply chains, economic stability, and ultimately an institution’s ability to deliver promised benefits.
Climate risk is a fiduciary issue
The Canada Climate Law Initiative’s research has examined what fiduciary responsibility means in the context of climate-related financial risk.
Fiduciaries must identify and assess material climate-related risks and opportunities. They cannot simply wait for perfect data to come one day. Climate-related risks unfold over different time horizons and contain uncertainty, but uncertainty is part of investment decision-making. Fiduciary duty calls for informed judgment based on the best information reasonably available. Fiduciaries need an informed, ongoing process for understanding those risks, testing assumptions, and acting where appropriate.
Given the extensive evidence of climate change and its financial consequences, fiduciaries who simply ignore those considerations may expose their institutions – and potentially themselves – to legal, financial, organizational and reputational risks.
The relevance for impact investing
These findings have important implications for impact investing.
Climate change represents a systemic risk that affects entire economies and markets, and these risks are not diversifiable. Regulators and financial institutions increasingly recognize that investors cannot simply construct portfolios that avoid its effects. As a result, investors must think strategically about how to build resilience and position portfolios for long-term value creation.
Impact investments in areas such as renewable energy, affordable housing, climate-resilient infrastructure, and Indigenous economic development may do more than produce positive social or environmental outcomes. They may also address material risks and opportunities while generating durable financial value.
This does not mean every investment labelled “impact” is automatically prudent. Fiduciary duty still requires rigorous analysis and careful assessment of risk-adjusted returns. However, where an impact investment offers an appropriate financial return while addressing risks or opportunities relevant to beneficiaries’ long-term interests, fiduciary duty not only permits the investment but may provide a strong basis for making it.
Lessons from La Caisse
A useful Canadian example is La Caisse, which manages retirement and insurance funds on behalf of public and parapublic institutions across Québec. Its mandate is distinctive. It must generate optimal long-term returns for its depositors while also contributing to Québec’s economic development. This mandate demonstrates what is possible when institutional purpose, investment strategy, and beneficiaries’ long-term interests are aligned.
La Caisse approaches climate change as both a financial risk and an investment opportunity. It achieved a nearly 50% reduction in its portfolio’s carbon footprint between 2017 and 2024, and is committed to deploying over $400 billion in capital toward climate-action investments by 2030, including low-carbon assets, adaptation and resilience initiatives, nature-based solutions, and technologies that support the transition to a low-carbon economy.
Importantly, sustainable investment is not treated as separate from fiduciary responsibility. It is viewed as the heart of La Caisse’s long-term value creation and effective risk management strategy. Impact does not replace financial performance but contributes to a more complete understanding of long-term value.
Where capital gets stuck
Capital rarely becomes stuck because of a single decision. It can become trapped in mandates that no longer reflect an institution’s investment horizon. It can become stuck when asset owners express support for impact investing but consultants continue recommending conventional allocations. It can become stuck when investment managers are expected to deliver long-term outcomes while being evaluated against short-term benchmarks.
In these situations, each participant may be acting reasonably within a narrowly defined role, yet the overall system prevents capital from moving. Addressing fiduciary concerns therefore begins with clarity.
Greater precision is needed when discussing impact investing itself. Investments that seek measurable impact alongside competitive risk-adjusted returns raise different fiduciary questions than investments that deliberately accept reduced financial returns. Treating those two categories as interchangeable allows the most difficult cases to cast doubt over the entire field.
Asset owners should ensure that governing documents, investment beliefs, and policies clearly articulate how financially material environmental and social factors will be considered. Broad statements about sustainability are insufficient without clear responsibilities and implementation mechanisms. Long-term impact cannot reasonably be expected when managers are assessed solely on short-term performance measures. Mandates, benchmarks, and incentives must be aligned throughout the investment chain.
Moving forward and moving capital
Regulators can support market development through clearer and more consistent guidance across Canada. Asset owners should understand that considering financially material environmental and social factors is not a departure from fiduciary duty. Where such factors affect risk, return, or beneficiaries’ long-term interests, they form part of prudent investment governance.
Fiduciary duty plays an essential role in impact investing. It protects beneficiaries from careless decisions, weak analysis, and unsubstantiated claims. It encourages rigour, transparency, and accountability. What fiduciary duty should not do is preserve familiar investment practices simply because they are familiar.
If Canada is serious about scaling impact investing, fiduciary duty must be understood as a framework for informed and responsible decision-making, not as a barrier to innovation.
The question for institutional investors is therefore not whether fiduciary duty permits consideration of the future. The question is whether fiduciaries are adequately preparing for it.
What capital could your institution responsibly deploy if fiduciary duty were understood not as a reason to stand still, but as a responsibility to prepare for the future?
