Responsible investing by charities: is clarity on the horizon?

Investors, both individual and institutional, increasingly wish to adopt a “responsible” investment strategy, which takes into account not only the financial performance of investments but also environmental, social and governance (ESG) considerations.

This shifting public mood towards recognising the importance of ESG considerations is not just seen in the approach of investors, however, it is reflected in changes to the duties imposed on company directors and pension scheme trustees over the last couple of decades. For example:

  • since the Companies Act 2006, company directors – including charitable companies – have been required to promote the success of their company, having regard in doing so to “the impact of the company’s operations on the community and the environment”
  • trustees of pension schemes have, since 2019, been required to disclose in their statement of investment principles (SIP) how they take account of "financially material considerations" – which include, but are not limited to, ESG considerations, including climate change.

Responsible investment has also become a hot topic for the charity sector over the last few years in particular.

There has been increasing frustration in some quarters, however, that investing responsibly is not necessarily straightforward for a charity trustee.

It can sometimes be difficult to determine whether a decision to exercise a power to invest responsibly – by, for example, taking into account environmental issues such as the climate crisis – breaches one or more of the charity trustee’s legal duties.

Recent developments, however, suggest that some clarity may soon be forthcoming.

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