Charity Investments And The Fight Against Climate Change. Legal Update Regarding Responsible Investment And Charity Trustee Duties

• Published date: 10 May 2022
• Subject Matter: orporate/Commercial Law, Charities & Non-Profits
• Law Firm: Wrigleys Solicitors
• Author: Mr Mike Ford and Peter Parker

A look at a recent High Court decision which updates the law on trustees' duties in respect of investment policies and environmental impact.

The recent High Court decision in Butler-Sloss & ors v Charity Commission & anr [2022] EWHC 974 (Ch) approved the investment approach of two charities that wished to exclude investments which would not be aligned with the goals of the Paris Agreement on limiting global warming temperature rises.

The trustees of two charitable trusts, the Ashdean Trust and the Mark Leonard Trust, wished to adopt investment policies for their respective charities which would exclude any investments which the trustees considered did not align with the Paris Agreement (which aims to limit global warming temperature rises). Both charities have general charitable objects and are part of the Sainsbury Family Charitable Trusts. The trustees brought proceedings at the High Court to establish whether their adoption of such investment policies was permissible under their respective charities' powers of investment.

Prior to the decision of the Honourable Mr Justice Michael Green in this case, the guidance from the Charity Commission surrounding investments made by charities focussed on the importance of investments generating the best financial return available. This was seen to help demonstrate that a charity's trustees were meeting their fiduciary duties in relation to their investment decisions. This meant there appeared to be limited manoeuvrability for charity trustees to make ethical or socially motivated investments where the financial return was identifiably lower than that of other investments in products or companies which did not carry the same ethical or social return.

The Charity Commission guidance is set out in CC14 (Charities and investment matters: a guide for trustees) where investments are broken down into the three categories of (i) financial investments (made with the motivation of maximising financial return), (ii) programme-related investments (made with the motivation of furthering a charity's objects) and (iii) mixed-motive investments (being a mix of financial and programme-related). It is this guidance which states that charity funds should be invested to produce the best financial return within the level of risk considered by the charity trustees to be acceptable. The Charities (Protection and Social Investment) Act 2016 then allowed charities to make social investments by way of programme-related and mixed motive...