Charity investment duties – cross-border and in Scotland

As a charity lawyer, it is not too often that we have the excitement of litigation, testing the principles of charity law, making it to court. In recent times we have seen some high profile and interesting cases doing just that – in Scotland, the New Lanark Case, whereas south of the border, the Kids Company case and now Butler-Sloss & Ors v The Charity Commission.

The Butler-Sloss judgement – investigating investment policies of trusts

In the Butler-Sloss judgement (which will be of interest to Scotland’s cross-border charities, with a registration in England and Wales), it was ruled that the trustees of charitable trusts may prioritise the climate change outcomes of their investments (aligning these with the Paris Agreement on climate change) even if this may not result in the greatest financial returns.

The case involved consideration of the investment policies of two trusts – the Ashden Trust and the Mark Leonard Trust (both linked to the Sainsbury family). The trusts effectively sought the court’s blessing to adopt new investment policies which would exclude many potential investments on the basis that the trustees considered them inconsistent with the trusts’ charitable purposes. The claimants sought court approval as the only leading case on this matter, the 1992 “Bishop Oxford” case established the principle that it was the duty of charity trustees (in England and Wales), in making investments, to maximise the financial return as opposed to having a focus on ethical considerations which could be detrimental to the charity, other than in those specific circumstances where an investment would be directly at odds with the charitable purposes of a given charity e.g. an environmental protection charity investing in oil.

Mr Justice Michael Green opined that “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 1.5C rise in pre-industrial temperature”.

What does this mean for charity trustees?

Ultimately, the judgement gives a degree of reassurance to charity trustees that there is not a one-size fits all approach to investment – and the key is for charity trustees to take account of all relevant factors and to reach a decision (acting in good faith) which they believe will be in the best interests of the charity and the furtherance of its purposes.

The Charity Commission is currently updating its guidance “Charities and investment matters: a guide for trustees (CC14) to reflect the legal judgment.

Principal guidance for Scottish charities

For Scottish charities, the principal guidance is “Charity Investments: guidance and good practice” which clarifies that “It’s not the case that charity trustees in Scotland have ‘a duty to maximise financial returns’. An investment doesn’t have to make money at any cost. It can provide both financial and non-financial returns but charity trustees have to consider all relevant factors and act in the interests of the charity at all times.”  The OSCR guidance recognises that investments should not be inconsistent with a charity’s purposes.

All charities should keep their investment policy under review – we are happy to discuss queries on potential policy changes prior to your making these.

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