Investment powers of charity trustees

The High Court has confirmed that charity trustees have a discretion to exclude investments which they reasonably believe are in conflict with their charity’s purposes. 

On 29 April 2022, the High Court handed down its judgment in Sarah Butler-Sloss & others v Charity Commission & HM Attorney General, a matter that is now the leading authority on how charity trustees should approach their investment powers.

The matter was brought to the Court by the trustees of two charitable trusts, the Ashden Trust and the Mark Leonard Trust, both having as their main charitable purpose, environmental protection and improvement. Both charities wished to implement new investment policies that would exclude (to the extent possible), any investments that did not align with the Paris Agreement (namely to limit global warming to below 2°C above pre-industrial levels, and to pursue efforts to limit it further to 1.5°C). Their application was made to obtain a declaration as to:

  1. the nature and scope of their power of investment as charity trustees; and
  2. how they might properly discharge such powers where particular investments or policies might be inconsistent or conflict with their charitable purposes.

One of the factors for the Court’s consideration was the risk of the implementation of such policies and the exclusion of certain investments resulting in lower investment returns. The risk of doing so would bring into question the lawfulness of such actions and whether they would be consistent with the duties of the trustees, particularly in the context of section 4 of the Trustee Act 2000 and the requirement for the maximisation of the charity’s financial returns.

The court recognised the importance of greater clarity in this area and the absence of the same in the Charity Commission’s guidance. The judgment approved the proposed approach to be taken by the trustees to adopt such a policy, even if doing so could pose a risk to the charity’s finances and be to its financial detriment in the short term.

Suggested actions for charity trustees
While the aim of the trustees in this matter was to ensure that the policies were consistent with the Paris Agreement, the judgment can be seen to have far-reaching consequences for all charities, irrespective of their charitable aims. 

The key points for charities trustees to take away from the High Court’s decision are as follows:

  1. consider the extent to which particular investments may conflict with the charity’s charitable purposes;
  2. consider whether existing investment policies need to be amended to ensure they are in line and consistent with the aims and objectives of the charity; and
  3. consider, when available, updated Charity Commission guidance on investments.

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