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Clarity provided for charitable trustees’ duties and powers when making investment decisions

removaloftrustee contestedwills

23rd May, 2022

Section 3 of the Trustee Act 2000 sets out trustees general power of investment. In exercising the power of investment, trustees must take account of the ‘standard investment criteria’. Section 4 of the act details that trustees must, from time to time, review the investments of the trust and consider whether, having regard to the standard investment criteria, they should be varied.

The law has been, until now, somewhat unclear in so far as trustees’ rights to apply their discretion to adopt an ethical and or responsible approach to investments.

The leading case in this area previously was Harries v Church Commissioners for England (1992 1 WLR 1241) colloquially known as the “Bishop of Oxford” case. Here, the court held that maximising financial return is always the starting point for charity trustees when considering the exercise of their investment powers and suggested 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, the recent case of Butler-Sloss & Ors v The Charity Commission for England and Wales & Anor [2022] EWHC 974 (Ch) (29 April 2022) has provided welcome clarity. The claimants, two charitable trusts’ principle charitable purposes were environment protection and improvement. Accordingly, they sought permission to adopt an investment policy that excluded potential investments that were not aligned with the achievement of the Paris Agreement goals, even if their investment financial returns may not be maximised as a result. To summarise, the Paris Agreement goals were to limit global warming to well below 2 degrees above pre-industrial levels, and pursuing efforts to limit it further to 1.5 degrees. Paragraph 1.(c) of the Article 2 of the Paris Agreement clearly states one way to achieve those goals is to make “finance flows consistent with a pathway towards low greenhouse gas emissions and climate resilient development”.

The presiding judge, Mr Justice Michael Green, noted that whilst the trustees’ investment powers must be exercised to further their charitable purpose (normally achieved by maximising financial returns on investments) it is important to allow discretion where investments classes conflict with overall charitable purposes.

He stated “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.”

However, a note of caution was also struck, reminding trustees that they need to be careful when making investment decisions purely on moral grounds, as they need to recognise that there may be differing legitimate moral views on certain issues between the charity’s supporters and beneficiaries.

Although this recent case concerns charities with an environmental focus, the decision ultimately, has wider application and has been welcomed by the Charity Commission.

Where trustees are in doubt as the course of action to take, as was the case here, assuming the proposed investment policy is sufficiently momentous to warrant the court’s blessing, then advice, and the court’s blessing should be sought before action is taken.
Our dedicated Contentious Wills, Trusts and Estates team has extensive experience providing advice for trustees and the management of trusts. Contact us for help and advice.

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