A landmark court ruling focused on climate change means charities in England and Wales can now safely exclude specific investments from their portfolio if in conflict with their charitable mission
In brief
- The case was brought by trustees of the Ashden Trust and the Mark Leonard Trust which focus on environmental issues
- The ruling gives environmental charities greater investment strategy flexibility
- The decision could have implications for other types of investors and other legal jurisdictions
A landmark London court ruling means trustees of charities in England and Wales can now safely exclude specific investments from their portfolio should they not align with their charitable purpose, without risk of falling foul of the law.
It’s a decision that could have a major impact on funding flows, given that charities in England and Wales hold over £150bn (€175bn) in long-term investments between them – and one that could also have ramifications for other investors, and in other legal jurisdictions too.
The April 29 High Court ruling addressed ambiguities in interpreting existing law based on a 30-year-old judgment in the 1992 Bishop of Oxford case. The judgement stated that a charity should seek to maximise financial returns for the organisation from its investments, regardless of moral or ethical considerations, except when an investment was clearly at odds with the charity’s objectives.
However, the circumstances in which an investment would conflict with a charity’s aims were not clearly defined and have become increasingly hard to assess over time. This is a notable problem for charities with climate change objectives given the ambiguity surrounding the environmental strategies of many companies in which they might invest.
Uncertainty over the law has generally pushed charities to adopt a broadbrush, low-risk investment strategy to avoid the possibility of conflict with the Charity Commission, the government body which oversees the sector in the UK. The result is that environmental charities are more likely to invest in established companies, even if their climate change credentials are questionable.
At the same time, they may direct fewer resources towards higher-risk investments in companies whose activities focus on climate change measures and are more aligned with the aims of the charity.
Renewables over fossil fuels
The case was brought against the Charity Commission by trustees of the Ashden Trust and the Mark Leonard Trust, two of the Sainsbury Family Charitable Trusts that focus on environmental issues affected by climate change.
In his ruling, the judge, Mr Justice Michael Green, said the court affirmed the investment policies of the two trusts, which align their investments with the goals of the Paris climate change agreement, rather than focusing solely on maximising financial returns.
Luke Fletcher, a partner at Bates Wells, a law firm that represented the trusts, said the ruling should encourage charity trustees to look at where conflicts with the organisation’s charitable purpose exist in their investments, and decide how to handle them on that basis, rather than needing to consider whether they could be breaking the law.
“They can now develop appropriate investment strategies, and feel, rightly, that this is an entirely legitimate and proper approach, as opposed to thinking that they need to do what everybody else does when they invest,” he told Impact Investor.
Harriet Lamb, Ashden’s CEO, said it was no longer necessary for risk-averse charities to think they had to put return on investment for their charity above their wish not to invest their charities’ funds in companies whose practices might conflict with their objects.
“The judgement is clear. Green charities, for example, can turn their back on the high returns of fossil fuel majors and invest instead in frontline organisations seeking to bring renewable energy to distant villages in Africa,” she said [in a blog post].
The Charity Commission will now need to revise its investment guidance, known as CC14, to reflect the ruling. This involves interpretation of the ruling, but is unlikely to diverge from the court’s findings.
“People will be interested in how the commission interprets the case. But the principles are set out in the judgement and the judgement has priority,” said Fletcher.
While the ruling was made in relation to a case brought by charities with a strong interest in climate change investment, it will also be relevant to any charity which has an aim that could conflict with those of companies in which it might invest. It may also have implications for both other legal jurisdictions and other types of investors.
Wider implications
The judgement is likely to prove influential in other countries, whose legal systems are based on English law and where courts may place weight on this judgement.
“A legal adviser based in Australia, or Canada or New Zealand, for example, might read the principles and expect a court there to come to the same conclusion,” said Fletcher. “There will also probably be other jurisdictions where the law may be unclear, where people may decide to pursue a similar case to clarify the law. So it may spur comparable litigation.”
Fletcher said the ruling may additionally have implications for other types of fiduciaries, such as pension fund trustees, investment managers, and others who are responsible for managing and investing money on behalf of others.
The judgment affirms that if a trust deed excludes certain categories or investments, then they must cannot be included in the investment portfolio.
“So, if you’re thinking about product design, for instance, in the case of pensions or other products, you could imagine those that expressly, in their constitution, exclude certain types of investments or mandate certain types of investment approaches,” he said.
