Investing With Purpose: Guidance For Trustees

• Published date: 13 September 2022
• Subject Matter: Corporate/Commercial Law, Charities & Non-Profits , Trusts
• Law Firm: Carey Olsen
• Author: Mr Ashley Fife

Businesses and investors are increasingly considering relevant environmental, social and governance (ESG) factors. However, trust law may not have kept pace with this phenomenon. How can trustees navigate this friction when investing in trust funds? A recent judgment provides guidance for trustees of charitable trusts wishing to align investments with their charitable purposes.

In Butler‑Sloss and Ors v Charity Commission for England and Wales and Anor,¹ the England and Wales High Court (the Court) blessed the charity trustees' decision to adopt investment policies that restricted investments to those aligned with the charities' purposes, thereby excluding many potential investments. In so doing, the Court provided clarification regarding Harries v Church Commissioners for England.²

The Charities

The Ashden Trust and the Mark Leonard Trust (the Trusts) were part of the Sainsbury Family Charitable Trusts network. The Trusts held assets of significant value. They had been established for general charitable purposes; however, the trustees subsequently decided to principally pursue the purposes of environmental protection, the prevention and relief of poverty and those in need.

The Trusts' terms provided the trustees with broad investment powers in addition to statutory investment powers. The terms did not restrict the investments the charities could make.

The aims and development of the investment policies

The financial objective of the investment policies was to generate capital growth exceeding inflation over the long term, while generating a sustainable spending level to support the Trusts' ongoing grant making. With the objective of reducing a direct conflict between the charities' purposes and their investments, the trustees sought to exclude, insofar as possible, investments that did not align with the Paris Agreement.³ The trustees wished to pursue such policies even if financial returns might consequently not be maximised. The trustees worked carefully with appropriate specialists to develop detailed investment policy statements, guidelines and portfolio allocation.

The investment guidelines effectively excluded over half of publicly traded companies and about 20 per cent of the total investible universe. Nevertheless, the investment policies' targeted investment return was 4 per cent above the consumer price index over five‑year rolling periods (consistent with published rates of return of other large charities), with the managers expected to...