Principles allowing Ethical Investment by Trustees
Should charities, whose principal purposes are environmental protection and improvement and the relief of poverty, be able to adopt an investment policy that excludes many potential investments because the trustees consider that they conflict with their charitable purposes?
Held: An amended declaration was granted.
‘I should summarise what I consider to be the law in relation to charity trustees taking into account non-financial considerations when exercising their powers of investment:
(1) Trustees’ powers of investment derive from the trust deeds or governing instruments (if any) and the Trustee Act 2000.
(2) Charity trustees’ primary and overarching duty is to further the purposes of the trust. The power to invest must therefore be exercised to further the charitable purposes.
(3) That is normally achieved by maximising the financial returns on the investments that are made; the standard investment criteria set out in s.4 of the Trustee Act 2000 requires trustees to consider the suitability of the investment and the need for diversification; applying those criteria and taking appropriate advice is so as to produce the best financial return at an appropriate level of risk for the benefit of the charity and its purposes.
(4) Social investments or impact or programme-related investments are made using separate powers than the pure power of investment.
(5) Where specific investments are prohibited from being made by the trustees under the trust deed or governing instrument, they cannot be made.
(6) 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.
(7) In considering the financial effect of making or excluding certain investments, the trustees can take into account the risk of losing support from donors and damage to the reputation of the charity generally and in particular among its beneficiaries.
(8) However, 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.
(9) Essentially, trustees are required to act honestly, reasonably (with all due care and skill) and responsibly in formulating an appropriate investment policy for the charity that is in the best interests of the charity and its purposes. Where there are difficult decisions to be made involving potential conflicts or reputational damage, the trustees need to exercise good judgment by balancing all relevant factors in particular the extent of the potential conflict against the risk of financial detriment.
(10) If that balancing exercise is properly done and a reasonable and proportionate investment policy is thereby adopted, the trustees have complied with their legal duties in such respect and cannot be criticised, even if the court or other trustees might have come to a different conclusion.’
The Honourable Mr Justice Michael Green
 EWHC 974 (Ch)
England and Wales
Cited – Harries v Church Commissioners for England 1992
The court considered the investment policy of the respondents and was brought by the then Bishop of Oxford (and two other priests) against the Church Commissioners in relation to their investment policy concerning South Africa. At the time South . .
Cited – Gaudiya Mission and others v Brahmachary CA 30-Jul-1997
The High Court had found the plaintiff to be a charity, and ordered the Attorney-General to be joined in. The A-G appealed that order saying that the plaintiff was not a charity within the 1993 Act. The charity sought to spread the Vaishnava . .
Cited – Friends of The Earth Ltd, Regina (on The Application of) v The Secretary of State for International Trade Export Credits Guarantee Department (Uk Export Finance) (‘Ukef’) and Another Admn 15-Mar-2022
FoE challenged the decision of the First Defendant Secretary of State to provide up to USD 1.15 billion in export finance and support in relation to a liquefied natural gas (‘LNG’) project in Mozambique. . .
Cited – Public Trustee v Cooper 2001
The court looked at the circumstances required when a court was asked to approve a proposed exercise by trustees of a discretion vested in them. The second category of circumstances was (quoting Robert Walker J): ‘Where the issue was whether the . .
Cited – Cowan v Scargill and Others ChD 13-Apr-1984
Trustee’s duties in relation to investments
Within the National Coal Board Pension scheme, the trustees appointed by the NCB were concerned at the activities of the trustees of the miners, and sought directions from the court. The defendants refused to allow any funds to be invested abroad. . .
Cited – Lehtimaki and Others v Cooper SC 29-Jul-2020
Charitable Company- Directors’ Status and Duties
A married couple set up a charitable foundation to assist children in developing countries. When the marriage failed an attempt was made to establish a second foundation with funds from the first, as part of W leaving the Trust. Court approval was . .
Cited – Palestine Solidarity and Another, Regina (on The Application of) v Secretary of State for Housing, Communities and Local Government SC 29-Apr-2020
The court considered the extent on trustees of an obligation to invest in an ethical manner.
Lord Carnwath said that trustees: ‘may take non-financial considerations into account – ‘provided that doing so would not involve significant risk of . .
Lists of cited by and citing cases may be incomplete.
Updated: 07 May 2022; Ref: scu.676874