Charities can exclude large part of investment market in fight against climate change, High Court says

29 Apr 2022 News

Charities can use their investment portfolios to fight climate change even if this excludes investing in a large part of the market, the High Court has ruled.

In the judgment, handed down today, High Court judge Mr Justice Michael Green has approved the investment policies of two charitable trusts, the Ashden Trust and the Mark Leonard Trust, which were designed to be aligned to the goals of the Paris Agreement on climate change.

These investment policies were based on scientific evidence of climate change and excluded, as far as practically possible, investments not aligned with the goals of the Paris Agreement.

The charities had brought the case (Butler-Sloss v Charity Commission) in order to provide legal clarity on the rights and responsibilities on trustees considering adopting a responsible investment policy.

‘Exercised their powers properly and lawfully’

“The Claimants have decided, reasonably in my view, that there needs to be a dramatic shift in investment policies in order to have any appreciable effect on greenhouse gas emissions and for there to be any chance of ensuring that there is no more than a 1.5°C rise in pre-industrial temperature,” the judgment says.

Therefore, Mr Justice Green said the trustees had “exercised their powers of investment properly and lawfully”.

“Where there are difficult decisions to be made involving potential conflicts or reputational damage, the trustees need to exercise good judgment by balancing all relevant factors in particular the extent of the potential conflict against the risk of financial detriment,” he added.

He also notes: “Both the Charity Commission and the Attorney General submit that the Claimants did not adequately balance the potential financial detriment that would be suffered by the adoption of the Proposed Investment Policy with the conflict to the charitable purposes.

“However it is clear from the Proposed Investment Policy itself that there is a targeted rate of financial return within it, which the Charity Commission’s evidence indicates is in line with the published rates of return of other large charities, such as the Church Commissioners or the Wellcome Trust.

“The Claimants therefore hope that the Proposed Investment Policy will not have any material financial impact in the long term while also acting in accordance with their charitable purposes.”

In response to the judgment, Sarah Butler-Sloss, the founder of the Ashden Trust, said the judgment “empowers trustees of other charities that care about the state of the planet and all its inhabitants to invest in a way that mitigates the worst impacts of climate change”.

Mark Sainsbury, the founder of the Mark Leonard Trust, said: “For too long, responsibilities in this area have been a source of uncertainty and differing advice and it’s been too easy for trustees to ignore the tension between their charitable purposes and certain investments.

“With this judgment there can now be no doubt that all charity trustees need to weigh up financial return against any potential conflicts with their aims and work.”

Bishop of Oxford case

Trustees of the two charities had brought this case as they felt the previous case on charities rights around ethical investment, commonly known as the Bishop of Oxford case, is now outdated.

This case took place in 1992 and involved the Bishop of Oxford challenging the Church Commissioners for England over is investment policy.

The bishop argued that the Church Commissioners should apply an ethical filter to its investment in order to ensure they aligned with Christian beliefs and values.

The outcome of this case recognised that there were times when a charity may wish to pursue an ethical approach to its investments, but that this was a secondary consideration to maximising investment income.

Charity Commission

The Charity Commission’s current guidance on responsible investment is based on the outcome of the Bishop of Oxford case.

The Commission started the process of updating its new guidance with a listening exercise at the start of 2020.

However, it put its consultation on the proposed guidance on hold once the case was brought, as the regulator recognised the outcome could affect its guidance.

Aarti Thakor, director of legal services at the Commission, said: “We welcome this judgment and its confirmation of the law relating to ethical investments in charities. We are pleased that the judge found, in line with our proposed guidance, that trustees can continue to have wide discretion when choosing to invest ethically.

“Charities understandably want to act in an ethical and sustainable manner, and we recognise that investments are a key source of influence. However, we are mindful that the charitable sector is hugely diverse and there are many different ways to drive positive change.  

“The judge confirmed that the law relating to trustees’ powers of investment should be suitable for all types of charities, offer flexibility and sustainability, and ensure the furtherance of a charity’s charitable purposes. We will be publishing our updated guidance in due course to ensure trustees can confidently adopt appropriate policies including in the context of pressing concerns around climate change.”

Charity Finance is packed with practical articles and analysis of the latest financial trends, as well as in-depth briefings on technical and legal changes, and benchmarking surveys to help busy finance teams get value for money. Find more information here and subscribe today!



More on