Ethical investment and charities

Climate change and ESG issues are frequently at the forefront of the news and are increasingly influencing the way in which investment decisions are taken.

As an individual, if you wish to invest, for instance, in an ethical investment with a low rate of return you may do so. But can you take that same decision if you are a trustee?

The case of Butler-Sloss and others v Charity Commission (April 2022) has drawn this more in to focus and Mr Justice Green set out 10 points in his judgement summarising the position when trustees take into account non-financial considerations i.e. climate change, when considering or taking advice on investment.

Those can be found within the judgement itself but importantly:

1. It reminds trustees that they should look at their trust deed or constitution and see what powers they grant. They should also be aware of the Trustee Act 2000.
2. This also acts as a reminder as to the purpose of the trust or charity and those decisions must be taken in furtherance of those purposes. If the governing document states that certain investments cannot be made, they cannot be made. Where the trustees feel that particular investments potentially conflict with the purposes then they should consider excluding them. Such considerations should be minuted and show that advice has been taken, risks and conflict considered, and the likely effects of exclusion (loss of money, donor reaction if the investment were made, reputation etc.).
3. The trustees should then draw up a suitable investment policy, showing the risks, factors taken into account and balances made.

This will then show that the trustees have acted honestly, reasonably, and responsibly and satisfied their duties as fiduciaries.