Does Butler-Sloss And Ors v The Charity Commission And Attorney General Go Far Enough?

• Published date: 14 September 2022
• Subject Matter: Corporate/Commercial Law, Wealth Management, Environment, Strategy, Charities & Non-Profits , Investment Strategy, Wealth & Asset Management, Environmental Law, Trusts
• Law Firm: McDermott Will & Emery
• Author: Mr Nick Holland and Jennifer Ronz

DOES BUTLER-SLOSS AND ORS V THE CHARITY COMMISSION AND ATTORNEY GENERAL¹ GO FAR ENOUGH?

Environmental, social, and governance (ESG) investing is increasingly on the agenda in the trust arena as beneficiaries and settlors are increasingly incorporating ESG data into decisions on investment objectives and strategy. Requests from beneficiaries and settlors to consider factors such as climate change or that certain industries be excluded from investment of a trust's assets because of their environmental impact, is becoming more popular. This has and is continuing to create challenges for family private trusts, in particular:

• ESG investing may conflict with the trustees' duty to preserve and safeguard trust assets and seek to obtain maximum financial return from their investments in the interests of all beneficiaries;
• The beneficial class and/or beneficiaries and trustees views may not be aligned to an ESG investment philosophy leaving trustees vulnerable to claims from disgruntled beneficiaries if they invested in ESG investments but might have produced better returns elsewhere; and
• Certain types of investments, such as non-income producing investments (including some ESG Investments), may be prohibited under the terms of the trust or violate the fiduciary obligation to balance the interests of capital and income beneficiaries.

In light of these issues, it is welcome news that cases about ESG investing by trustees are starting to filter through the Courts in many jurisdictions. Before the Butler Sloss Case handed down on 29 April 2022, it was almost 30 years since the courts last considered how charity trustees might legitimately take account of non-financial considerations when investing. However, we consider below how much protection the recent jurisprudence offers trustees of non-charitable trusts [and arguably charitable trustees] looking to adopt a responsible approach to investment.

Here is an overview of the judgment.

Background

• The case was brought by the trustees of two charitable trusts (the Trustees), the Ashden Trust and the Mark Leonard Trust. Both charities have general charitable purposes although their trustees have decided to focus primarily on environmental and associated charitable purposes.
• The Trustees wanted to adopt investment policies which would as far as possible, exclude investments that did not align with the Paris Climate Agreement 2016 (the Proposed Investment Policy). The Proposed Investment Policy would exclude over half of...