IN FOCUS6-8 min read

Charity investment: what do the latest legal developments mean for trustees?

A recent High Court judgment puts more responsibility on charity trustees to balance financial and non-financial considerations.



Tom Montagu-Pollock
Co-Head of Charities and Fund Manager

Much has changed since the Charity Commission’s guidance on investing for charities – Charities and investment matters: a guide for trustees – was last updated in 2016. There has been a dramatic shift in our awareness of climate change, in particular. The Paris Agreement, which aims to limit the rise in global temperatures, came into force in 2016. And investors now have much greater insight into listed companies’ environmental impact. While many are moving towards alignment with the Paris Agreement goals, others are making little progress.

This raises difficult questions for trustees, especially those working with charities with environmental objectives and concerns. Can trustees make investments that are not aligned with the Paris Agreement? And is a Paris-aligned investment universe consistent with the long-standing view that charities should invest to “maximise return?”

The trustees of two charities – the Ashden Trust and the Mark Leonard Trust – recently sought to clarify the law around these issues in a case that was heard by the High Court, Butler-Sloss & Ors v The Charity Commission & Ors. The two charities have general charitable objects but have elected to pursue “environmental protection or improvement” and “relief of poverty”.

Luke Fletcher, a partner at law firm Bates Wells, acted for the trustees in this case and spoke to us about it at a recent update for charity trustees. (Watch the replay).

“It’s a case that throws up a broad range of issues and questions for all charity trustees. Importantly, the judgment articulates the law as it currently stands – so trustees ought to be applying the principles that it describes now, rather than waiting for an update to the Charity Commission’s guidance.”

Clarifying the legal position

The Charity Commission’s current guidance is largely based on the 1991 “Bishop of Oxford” case. It was brought by the Bishop of Oxford against the Church Commissioners, centred on South Africa-related investments at the time of apartheid. The Church Commissioners already had an ethical investment policy in place, but the Bishop of Oxford wanted it to go further.

The claim was rejected – but the judgment did give a firmer legal basis for charity trustees opting for ethical investment policies. The Judge said that the “maximum return…consistent with commercial prudence” should be the “starting point for all charity trustees”. But he acknowledged that there could be circumstances where other considerations should be taken into account. These include both direct conflicts with a charity’s purpose (such as a cancer research charity investing in tobacco) and indirect conflicts (where potential investments could alienate potential charity donors or recipients).

The Charity Commission’s current guidance on ethical investment is based on a relatively conservative interpretation of the case. It quotes the Judge’s observation that “most charities need money; and the more of it there is available, the more the trustees can seek to accomplish.” It follows up by advising trustees to “keep in mind the fundamental principle of maximising return” when making ethical investments.

Why was the Butler-Sloss case necessary?

This framework is no longer satisfactory for many charity trustees. This became apparent to the trustees of the Ashden and Mark Leonard Trusts after the release of the IPCC report in 2018, which highlighted the “rapid and far-reaching” transitions needed to limit global temperature rises and the terrible consequences of inaction.

The judge in the Butler-Sloss case accepted the view that investments that are not aligned with the Paris Agreement could be in direct conflict with their charitable objectives. “He didn’t say this was necessarily right…but accepted that it was a reasonable conclusion for the trustees to reach,” explained Luke Fletcher. “The Bishop of Oxford case pre-dated climate change. When the trustees of the Ashden and Mark Leonard Trusts asked the question ‘What are our duties in light of climate change?’ the case wasn’t that illuminating. Different lawyers would have given very different answers.”

One issue identified by the trustees was that limiting investments to those aligned with the Paris Agreement would result in a much-reduced investment universe. This is a very different scenario to those set out in the Bishop of Oxford judgment, which contemplated narrow sectoral exclusions (e.g. tobacco or defence) with much more limited investment implications as a result.

The Bishop of Oxford case is also unclear about exactly how trustees should balance their duty to maximise return with other considerations. The judgment says that trustees “should” avoid investments that directly conflict with their charitable objects – but does this mean they are prohibited? What if there is a potential for conflict, but insufficient information to know for sure? This could often be the case when it comes to assessing whether or not a company is aligned with the Paris Agreement.

So, in part, the Butler-Sloss case was a way of clarifying current law. And the Judge gave a clear summary of the law on charity investment.

In short, trustees must use their power to invest “to further the charitable purposes.” He goes on to explain that this is “normally achieved by maximising the financial returns on the investments that are made” while taking into account ”the suitability of the investment, the need for diversification and taking appropriate advice to produce the best financial return at an appropriate level of risk for the benefit of the charity and its purposes.”

“But 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.”

Key takeaways for trustees

“This judgment recognises that potential conflicts with charitable objects could exist across the investment universe,” said Luke Fletcher.

“The judgment places a lot of emphasis on the idea of trustees’ discretion. It’s not for the court or the Charity Commission to decide whether a conflict exists – it’s for trustees. In many ways, the judgment is empowering trustees to think about these questions and come to their own conclusions. It is placing a far greater responsibility on trustees to weigh up all relevant factors.”

Bates Wells’ practical steps for trustees

  1. Brief trustees on legal principles
  2. Review and reflect upon objectives and investment
    - Identify potential conflicts with objects (and relevant positive impact)

    - Identify any relevant relational or reputation risks

    - Consider relevant evidence regarding conflicts
  3. Develop investment policy in best interests of charitable purposes

    - Consider seeking advice - financial and other advice
  4. Document discussions/decision in minutes and investment policy

    - Including conclusion on conflicts and any balancing exercise
  5. Instruct your investment manager and review over time

Cazenove Capital manages investment portfolios for the two charities that were involved in this case. We can advise trustees on developing investment policies that are aligned with a wide range of charitable objectives. Please contact us to find out more.

This article does not constitute legal advice.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.


Tom Montagu-Pollock
Co-Head of Charities and Fund Manager


Ethical investing
Responsible Investing

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