Charities seek ‘urgent legal ruling’ on trustees' investment responsibilities

04 Mar 2019 News

A group of charities has written to the Charity Commission seeking “urgent” clarification on voluntary organisations’ legal responsibilities about whether their investments should align with their charitable objects.

Today, charities including RSPB, Joseph Rowntree Charitable Trust, Nesta, Ashden Trust, ClientEarth and Quakers in Britain, supported by law firm BWB, wrote an open letter to Commission chair Baroness Tina Stowell.

The charities asked Stowell if she, with the consent of the attorney general, would refer a question about the operation of charity investment law to the Charity Tribunal.

In its letter, the group says it hopes to clarify whether charities are expected to align their investments with their charitable objects and their commitment to benefit wider society.

It says the current expectations for charity trustees are unclear for a number of reasons:

  • The relevant case law is outdated and insufficient - the last time the courts considered the issue was nearly 30 years ago;
  • Climate change is developing and public opinion is changing;
  • OSCR, the Scottish charity regulator, has changed its guidance for charity investors to "make sure that investments are not inconsistent with the charity’s purposes";
  • The Charity Commission's CC14 is "potentially misleading" in that it fails to address the issue of conflicts between investments and charitable objects.

The letter says "there is a limit to the clarity which Charity Commission guidance alone is able to bring".

‘Concurrent legal issues’

The group said there is currently not a regulatory requirement for charities to have a responsible investment policy, however some of its members argue that trustees have duties not to make investments that might conflict with their charity’s objects.

Alice Garton, head of climate at ClientEarth, said: “Charity trustees have legal duties to seek financial returns from investing a charity’s assets but they also have duties not to make any investments which might conflict with its charitable purpose.

“A lack of clarity around how these concurrent legal duties should be balanced is fuelling uncertainty for trustees and increasing the risk of their decisions being called into question later.

“By clarifying how trustees should approach this issue, the Charity Commission and Attorney General can provide much-needed certainty as well as positive support for investment in a safe and secure future.”  

Meanwhile, Lord Rowan Williams of Oystermouth, the former Archbishop of Canterbury, said: “Investment policy has become a crucial area of moral debate at a time when we are at last recognising the urgency of issues around climate change.

“It is now of real importance that charity law should be clarified in a way that acknowledges the need to align investment practice with the imperatives of responsibility to and for our global environment.”

NCVO supported the charities' campaign. Sir Stuart Etherington, chief executive, said: “It would be enormously helpful for charities to have greater clarity in this area.

"What’s right for one organisation may not be right for another. Trustees would find it reassuring to be confident that they have the latitude to invest in the way that they think best reflects their charity’s strategy, values and mission.”

Commission recommends other options

The Charity Commission welcomed the letter but suggested that a reference to the Charity Tribunal might not be the best method to achieve greater clarity over trustees' investment responsibilities.

Rebecca Fry, head of legal policy, said: “We agree that public attitudes to the broad issue of ethical investment by charities have moved on and we are sympathetic to calls for greater clarity for trustees.

"However, a reference to the Tribunal could be costly, time-consuming and its outcome, by definition, uncertain.

"There are other options to consider which might achieve a better outcome and greater clarity and confidence in the scope trustees have for investing their charity’s money in line with their purposes, ethos and values."

'We need to be careful'

The Charities Aid Foundation, meanwhile, urged caution against creating "universal prohibitions on particular investment areas that might stop charity trustees from fulfilling their mission".

Sir John Low, chief executive, said: “Official guidance already makes it clear that trustees can adopt responsible investment policies and have to justify their investment decisions but we do need to do more to ensure that these important issues are understood and applied more effectively. 
“There are many powerful ways in which charities can use investments to further their mission and tackle issues like climate change, health, poverty, inequality and human rights so it is vital that they have the freedom to take a stand on the issues that are most important for their mission and the people they serve.

“Our experience from offering ethical funds over many years is that the moral judgements involved are often very complex and challenging.

"We do need to be careful not to create universal prohibitions on particular investment areas that might stop charity trustees from fulfilling their mission."

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