Important UK Charity investment case law (2022): “Should charities, whose principal purposes are environmental protection and improvement and the relief of poverty, be able to adopt an investment policy that excludes many potential investments because the trustees consider that they conflict with their charitable purposes? One might be forgiven for thinking that the answer should obviously be that such a policy would be entirely appropriate. But because of uncertainty over the reach of the only leading case in this area […]and the fact that this is a very important decision for them, the Claimants, who are the trustees of two such charities, seek the Court's blessing for the adoption of their new investment policies.”

The decision - in my view - of this judgment is that charities now have the discretion to exclude certain investments, even where the potential return from those investments would be greater, if the trustees reasonably believe that the investments would be in conflict with the charity’s objects.

So, for instance if a charity has an environmental objective then exclusions based on, for instance, Paris-alignment assessments would be allowed (if a proper balancing assessment was done by the trustees.)

Judge also sums:

(1)  Trustees’ powers of investment derive from the trust deeds or governing instruments (if any) and the Trustee Act 2000.

(2)  Charity trustees’ primary and overarching duty is to further the purposes of the trust. The power to invest must therefore be exercised to further the charitable purposes.

(3)  That is normally achieved by maximising the financial returns on the investments that are made; the standard investment criteria set out in s.4 of the Trustee Act 2000 requires trustees to consider the suitability of the investment and the need for diversification; applying those criteria and taking appropriate advice is so as to produce the best financial return at an appropriate level of risk for the benefit of the charity and its purposes.

(4)  Social investments or impact or programme-related investments are made using separate powers than the pure power of investment.

(5)  Where specific investments are prohibited from being made by the trustees under the trust deed or governing instrument, they cannot be made.

(6)  But 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.

(7)  In considering the financial effect of making or excluding certain investments, the trustees can take into account the risk of losing support from donors and damage to the reputation of the charity generally and in particular among its beneficiaries.

(8)  However, trustees need to be careful in relation to making decisions as to investments on purely moral grounds, recognising that among the charity’s supporters and beneficiaries there may be differing legitimate moral views on certain issues.

(9)  Essentially, trustees are required to act honestly, reasonably (with all due care and skill) and responsibly in formulating an appropriate investment policy for the charity that is in the best interests of the charity and its purposes. Where there are difficult decisions to be made involving potential conflicts or reputational damage, the trustees need to exercise good judgment by balancing all relevant factors in particular the extent of the potential conflict against the risk of financial detriment.

(10) If that balancing exercise is properly done and a reasonable and proportionate investment policy is thereby adopted, the trustees have complied with their legal duties in such respect and cannot be criticised, even if the court or other trustees might have come to a different conclusion.
I would echo the judge who wrote:

“I think it was important, not only for these charities, but also for charities generally, that there should be clarity as to the law on investment powers of charity trustees. That is why I gave permission for these proceedings to be brought. I hope that such clarity has been provided.”

The judge decided:

“…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 and the performance of the portfolio will be tested regularly against recognised benchmarks and will seek to provide the financial return specified in the Proposed Investment Policy.

Accordingly I consider that the Claimants have exercised their powers of investment properly and lawfully, having taken account of all relevant factors and not taken into account irrelevant factors. I believe that the decision to adopt the Proposed Investment Policy is sufficiently “momentous” to justify the court giving its blessing to that decision and I therefore make the declaration that is sought in the adjusted wording of declaration 9 in the draft Order. That is in the following terms, with my amendments:

“The trustees of the Charities are (a) permitted to adopt [the Proposed Investment Policy] and (b) that doing so will discharge their duties in respect of the proper exercise of their powers of investment.”

Read the full judgment : https://www.bailii.org/ew/cases/EWHC/Ch/2022/974.html

Or Pdf here.