Planet v profit - rethinking ethical investment policies

Pippa Garland (1) Lucy Saunders, Associate in the Russell-Cooke Solicitors, property litigation team.
Multiple Authors
4 min Read
Pippa Garland, Lucy Saunders

Rethinking ethical investment policies – impact of Butler-Sloss v Charity Commission

A recent ruling sets out the legal principles for charity trustees exercising their investment powers – potentially empowering many more charity trustees to adopt more ethical investment policies.  


The case was brought by trustees of the Ashden Trust and the Mark Leonard Trust, two grant-making charities that have a charitable focus on tackling climate change.

The trustees wanted to align the charities’ investment polices with the goal of the Paris Climate Agreement, by excluding investments that conflicted with that goal. They sought confirmation as to whether or not the charities could adopt these policies, even if they came at a financial cost.

The potential importance for the sector was that this presented an opportunity for the courts to clarify charity trustees’ legal investment duties, in the context of the current discussions around ethical investment.

Until now, the main legal authority was a case dating back to the 1990s, known as the Bishop of Oxford case. This concluded that charity trustees should prioritise maximising the financial return on their investments and should not take into account ethical or moral considerations that could cause financial detriment to the charity.

There was an exception for ‘rare’ circumstances where an investment directly conflicted with the charity’s purposes or indirectly conflicted with its work. However, it was unclear whether charities were prohibited from making investments that directly conflicted with their objects, or if this remained a matter for the trustees’ discretion.

The key legal principles

The judgment confirmed that the trustees were permitted to adopt the proposed investment policies.

However, of wider interest, the judgment set out the following legal principles:

  1. Trustees’ primary duty is to further their charitable objects – and investments should be made to further those purposes.
  2. Furthering the charity’s purposes is “normally achieved by maximising the financial returns” on investments.
  3. Trustees are required to act honestly, reasonably and responsibly in formulating an investment policy that is in the best interests of the charity and its purposes.
  4. Where trustees believe that investments may potentially conflict with their charitable purposes, they have discretion (not an obligation) to exclude them.
  5. Trustees’ discretion to exclude investments should be exercised by trustees “balancing all relevant factors”. Relevant factors include:
  • the likelihood and seriousness of the potential conflict with the charity’s objects
  • the likelihood and seriousness of any potential financial effect
  • the risk of losing support from donors
  • the potential for damage to the reputation of the charity, in particular, amongst its beneficiaries

If this balancing exercise is properly done, and a “reasonable and proportionate” investment policy is subsequently adopted, the trustees will have complied with their legal duties.

6. Trustees should be careful in relation to making decisions on investments on “purely moral grounds”, recognising that there may be differing legitimate moral views on certain issues among the charity’s supporters and beneficiaries.

What does this mean?

Despite the attention-grabbing headlines, the judgment does not represent a major departure from the current legal position, or from the Charity Commission’s guidance on investments.

However, it does give charity trustees clarity and a clear approach to take when evaluating investment decisions. It is helpful to have the legal principles set out for trustees in the updated context of climate change and the growth of ethical investing.

The case applies to all charities immediately, and takes priority over the Charity Commission guidance.

What next?

The Charity Commission has welcomed the judgment and will amend its guidance to incorporate it.

The ruling should give trustees increased confidence in their ability to adopt ethically focussed investment policies, and the framework for their decision making in doing so. Trustees can be clear that they are able to adopt policies that take into account the climate impact, and other harms, arising from their investments – even if that comes at a financial cost.

The case focussed on the exclusion, or divestment, of certain investments. However, there is a growing view that engaging with companies, through investments, to improve their net zero transition can have a greater impact. Taking a wider view, trustees may need to decide which route they want to go down: divestment or stewardship.

Pippa Garland is a partner in the charity and social business team. She advises charities, social enterprises and other not-for-profit organisations on all aspects of charity law. 

Lucy Saunders is a trainee solicitor in the charity and social business team. 

Briefings Charities charities charity law ethical investments rethinking investment policies investment for charities