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Trustees’ responsibilities for investment policy

On 29th April 2022 the High Court delivered its judgement on the case of Butler-Sloss and others versus the Charity Commission.  The case centred around trustees’ powers over investment policy and attracted a lot of interest from those charities where management of an investment portfolio is central to the charity’s operating model.

The background to the case was that two charities with objectives of protecting and enhancing the environment asked for the court’s approval to give their investment manager a set of objectives which included the power to exclude investments in companies whose activities were felt to conflict with the 2016 Paris Climate Agreement, on the basis that holding such investments would not align with the charities’ objectives. 

The central issue was the extent to which charities can allow their charitable objectives and wider ethical considerations to influence their investment policy, even if this meant not holding stocks which would have been expected to produce favourable monetary returns. Current Charity Commission guidance in this area stems from the ‘Bishop of Oxford’ case in 1992 and starts from the general responsibility of trustees to act in the charity’s best interests. That case acknowledged that the starting point for most investment policies is maximising the financial return and that “…the circumstances in which charity trustees are bound or entitled to make a financially disadvantageous investment decision for ethical reasons are extremely limited.”

However, that judgement also provided that trustees could decide not to invest in particular companies where “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…even if it would be likely to result in significant financial detriment…”

The Butler-Sloss decision concluded that the Bishop of Oxford case did not impose a prohibition on holding investments that directly conflicted with the charitable objects of the charity, but that it does allow trustees to strike a balance between financial return and the furtherance of charitable objectives when setting an investment policy. Trustees may also take into account the risks of potential reputational damage or of loss of support from donors. The case is helpful in confirming that trustees can make a balanced decision between investment return and charitable objectives when setting an investment policy, and charities will want to make sure that trustees’ consideration of the balance between the two is fully documented. The judgement in this case specifically relates to a direct conflict between the charities’ objectives and the activities of certain companies, and the judgement cautions against trustees making broader judgements on issues outside of the charity’s core objects. The Charity Commission ran a public consultation on responsible investment in 2021. This consultation closed in May of that year, but the Commission’s final guidance document has been on hold pending the outcome of this case.  The Commission has committed to publishing its final document, which will presumably be “CC50”, shortly now that the judgement has been delivered.


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The information in this newsletter must not be relied on as giving sufficient advice in any specific case.   


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