16 June 2022

The Case - Sarah Butler-Sloss and Ors v The Charity Commission and HM Attorney General [2022] EWHC 974 (Ch)

The Claimants were the trustees of the Ashden Trust and Mark Leonard Trust (the ‘Trustees’), two trusts whose principal purposes included environmental protection or improvement. The Trustees’ understanding was that, following the judgment in what is known as the ‘Bishop of Oxford’ case ([1992] 1 WLR 1241), they were prohibited from making investments which conflicted with that charitable purpose.

The Trustees therefore approached their new investment policy by determining what investments would conflict with their charitable purposes. In this respect, the Trustees decided that their investments had to be aligned with the UN Framework Convention on Climate Change (the Paris Agreement). However, this new investment policy would exclude over half of publicly traded companies and many commercially available investment funds, because of the relatively weak ESG credentials of such companies and funds.

What concerned the Trustees was that in the Bishop of Oxford case (the only previous reported case dealing with ethical investments by charities), the Vice-Chancellor had said:

‘If, as would be likely in those examples, trustees were satisfied that investing in a company engaged in a particular type of business would conflict with the very objects the charity is seeking to achieve, they should not so invest. Carried to its logical conclusion the trustees should take this course even if it would be likely to result in significant financial detriment to the charity.’ (emphasis added)

In particular, it was thought that the use of the word ‘should’ caused uncertainty as to whether charities are prohibited from investing in a manner which directly conflicts with their charitable purposes.

The Trustees applied to court to seek clarity on the law and obtain the court’s blessing for the adoption of their new, ESG focused investment policy in circumstances where they acknowledged that the policy might cause some financial detriment by limiting investment returns.

As interested parties, the Charity Commission for England and Wales and the Attorney-General were respondents to the application. They also sought clarity on the law but opposed the adoption of the Trustee’s new investment policy based on concern as to the wider implications of such a policy, or policies like it, for the charitable sector as a whole. In the Defendants’ view:

  • There should not be an absolute prohibition on charities making investments that directly conflicted with their purposes or objects;
  • The decision as to whether to include or exclude investments was a matter of discretion for the trustees in each case; and
  • In this case, the Trustee had not properly exercised that discretion by reasonably balancing all relevant factors, including the seriousness of the financial detriment which might arise from the adoption of the new policy.

The Decision

The Court reiterated that the Vice Chancellor in the Bishop of Oxford case had been looking at stark examples of conflicts (i.e. cancer charities investing in tobacco products and Quakers investing in armaments companies). Taken in context, the Vice Chancellor’s statements were not intended to be an automatic prohibition, but a logical consequence of reasonably balancing all relevant factors in those particular cases.

The Court further confirmed that a direct conflict with a charity’s purposes is a major factor where the trustees are exercising their discretion. The following quote sets the position out neatly: 

‘where trustees are of the reasonable view that particular investments or classes of investments potentially conflict with the charitable purposes, the trustees have a discretion as to whether to exclude such investments and they should exercise that discretion by reasonably balancing all relevant factors including, in particular, the likelihood and seriousness of the potential conflict and the likelihood and seriousness of any potential financial effect from the exclusion of such investments.’ paragraph 78(6).

Applying the above approach, the judge approved the Trustee’s new investment policy, determining that they had sufficiently considered all relevant considerations and not taken account of irrelevant facts. In particular, despite the Defendant’s objections, he was satisfied that the Trustee had sufficiently considered the potential financial detriment of their new policy and took comfort from the fact that the targeted rate of financial return was in line with the published rates of return of other large charities and the performance of the portfolio was to be tested regularly against recognised benchmarks.

The judge also laid out in simple terms the reasoning behind his decision:

‘The Claimants have decided, reasonably in my view, that there needs to be a dramatic shift in investment policies in order to have any appreciable effect on greenhouse gas emissions and for there to be any chance of ensuring that there is no more than a 1.5°C rise in pre-industrial temperature. The only question is whether they have sufficiently balanced that objective with any financial detriment that may be suffered as a result. In my view they have.’

Whilst this is a case involving a charitable trust, we believe that this decision provides useful guidance for the trustees of non-charitable trusts considering investment policies that target ESG objectives. 

Takeaway Points

  • Charity trustees’ primary and overarching duty is to further the purposes of the charity. The power to invest must therefore be exercised to further those charitable purposes. That is normally achieved by maximising investment returns but trustees must consider the suitability of investments and diversification.
  • Where trustees reasonably consider certain investments or classes of investments conflict with their charitable purposes, they have a discretion as to whether to exclude those investments. That discretion should be exercised in the normal way i.e. by balancing all relevant factors, including the likelihood and seriousness of the both the conflict and any financial detriment that might be suffered as a result of the proposed investment strategy and the investments proposed to be included and excluded from this. In this context, the possibility of reputational damage and losing donors can also be taken into account.
  • Care must be taken when considering moral obligations due to the potential for different interpretations. Taking the example given in the Bishop of Oxford case, it would not be possible to determine what investments are aligned with ‘promoting the Christian faith’ as it is open to each individual’s interpretation.
  • Trustees adopting specific investment policies should ensure they have set out their reasons for doing so. This should be easily accessible and in writing so that it is available, should the trustees need to justify their decision.
  • Watch this space for further guidance from The Charity Commission. The Charity Commission sought to consult on changes to its 2014 guidance in 2021 but this was delayed pending this judgment and should now be forthcoming to clarify The Charity Commission’s approach.

This article was written by Justin Briggs.

If you have any questions about matters addressed in this article, please contact Justin Briggs.

Key contact

Justin Briggs

Justin Briggs Partner

  • Trust Disputes
  • Tax Negligence
  • Pension Disputes

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