EWHC rules trustees can make investment decisions that give lower returns

Tuesday, 03 May 2022
The England and Wales High Court (EWHC) has declared that charity trustees can take environmental goals into account when deciding how to invest the charity's assets, even if the result will be a lower return on the investments.
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The case was brought by the trustees of two charities, the Ashden Trust and the Mark Leonard Trust, whose principal purposes were environmental protection and improvement and the relief of poverty. Both are part of the Sainsbury Family Charitable Trusts (Sainsbury) network and work closely together, having similar purposes and sharing their staff and investment manager. They have substantial assets of GBP42 million and GBP22 million, which they distribute as grants to worthy recipients involved in their fields of philanthropy.

The trustees of both trusts, led by settlors Sarah Butler-Sloss and Mark Sainsbury, asked the EWHC to clarify the extent of their investment discretion. They wanted to know whether they could refrain from investing in profitable activities that they considered would conflict with their charitable purposes. The leading case in the area is Harries v Church Commissioners for England (1992 1 WLR 1241), known as the Bishop of Oxford case. This concerned the Church of England's investment policy in relation to South Africa, at the time still an apartheid state. Its outcome was that charity trustees should maximise return on their investments except where the investment explicitly conflicted with the charity's purposes. Trustees' responsibilities have been a matter of uncertainty and differing advice ever since.

The Sainsbury trustees thus proposed an investment policy under which they would exclude from their portfolio any investments that did not align with the Paris Climate Agreement, signed in April 2016. They sought court approval for this policy. The defendants to their claim were nominally the Charity Commission of England and Wales (the Charity Commission) and the Attorney-General. Both argued that it was premature for the EWHC to approve the trustees' proposed investment policies based on the available evidence, but they invited the judge, Michael Green, to deliver a judgment setting out the correct approach in law for charity trustees to follow in considering adopting an ethical or responsible investment policy.

Green began by noting that charity trustees' power to invest must be exercised to further the trust's charitable purposes, which would normally be achieved by maximising the financial returns on the investments that are made, under the standard criteria set out in s.4 of the Trustee Act 2000. Trustees cannot, however, make investments that are specifically prohibited by the trust deed or governing instrument. Moreover, he added, trustees also have a discretion as to whether to exclude particular classes of investments they reasonably believe potentially conflict with the charitable purposes. They are entitled, he said, to balance ‘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’. They can also take into account the risk of losing support from donors and damage to the reputation of the charity, especially among its beneficiaries.

However, Green added that 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’. If they balance all these factors honestly, he said, they have complied with their legal duties and cannot be criticised even if the court or other trustees might have come to a different conclusion.

'I believe that the [trustees'] decision to adopt the proposed investment policy is sufficiently “momentous” to justify the court giving its blessing to that decision', he concluded. Accordingly, he made the declaration sought by the trustees, that adopting their proposed policy would discharge their duties in respect of the proper exercise of their powers of investment (Butler-Sloss v Charity Commission, 2022 EWHC 974 Ch).

The Charity Commission welcomed the judgment and intends to revise its investment guidance to reflect the decision.

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