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Charity Community

What does the recent Butler-Sloss v Charity Commission case mean for your charity’s investment policy?

Author: Kristina Kopic, Head of Charity and Voluntary Sector, ICAEW

Published: 08 Jun 2022

Charitable purposes are at the heart of investment decisions.

Charity trustees have always known that their organisation’s performance depends on the positive impact of their work and cannot be measured in financial returns alone.

However, for endowed charities, the financial returns of their investment portfolios determine how much funding is available for charitable activities, which often includes grant making to other not-for-profit organisations. This leaves trustees in the difficult position to balance the charitable impact enabled by financial returns with the potential negative impact of their financial assets.

The recent court case of Butler-Sloss v Charity Commission brought trustees legal clarity that they can adopt a responsible investment approach, even where this could impact on their financial returns.

The case

Two charitable grant-making trusts, the Ashden Trust (of which Butler-Sloss is a trustee) and the Mark Leonard Trust, brought the case to seek confirmation that their trustee boards were not overstepping their legal rights and responsibilities by aligning the trusts’ investment policies with their mission.

The trusts’ wide charitable objects include the protection of the environment. Hence, the trustees wanted to avoid conflict between their investment and charitable objectives by seeking to align their investment policy with the goals of the Paris agreement on climate change. The trusts were successful: the High Court judgement permitted both trusts to adopt the proposed investment policies, after the judge found that the trustees had exercised their powers of investment properly.

Following the judgement, charity trustees can now now place greater reliance on the legal principles which underpin the judgement when they make investment decisions. This allows charities to consider both the positive and the negative impacts of their investment decisions and will perhaps encourage more trustees to consider the deployment of their financial assets from a more holistic perspective. Increasing public awareness of climate action also means that more charity trustees need to consider the reputational impact of their investment decisions if these conflict with the charity’s aims.

Financial and non-financial targets

Extracts from the trusts’ investment policy were quoted in the judgement and outline the trustees’ targets for financial returns while seeking to reduce the carbon intensity of the investment portfolio to align with the Paris Climate Agreement.

They state that the total portfolio should be constructed in a way that greenhouse gas emissions associated with the investment portfolio are congruent with “the long-term global warming target of well below 2°C, and preferably 1.5°C, above pre-industrial levels.” However, the trustees also wish to make investments that will provide a good risk-adjusted return and, over the long term, generate capital growth in excess of inflation, with an “overall investment return objective as UK consumer price + 5% per annum on average over five year rolling periods.

Furthering charitable purposes should be at the heart of investment decisions

Many custodians of charitable assets will agree that investment decisions should also consider non-financial aspects, but most charities can do more to reflect their own charitable purposes in their investment decisions. Summarising the law, Mr Justice Michael Green reminded trustees to comply with the governing document of the charity and the Trustee Act 2000.

This requires trustees to further the charity’s purposes which is normally achieved by maximising financial returns on the investments while managing financial risks. However, specific investments may be prohibited by the charity’s governing document, or there may be conflict between the charitable purposes and certain investments. In the latter case, trustees have discretion whether to exclude such investments from their portfolio. They are advised to balance all relevant factors and assess the likelihood and seriousness of both the potential conflict and the financial effect.

In this balancing exercise, trustees can take into account the reputational risk of their investment decisions, which may include losing support from donors and beneficiaries. However, their supporters may have differing legitimate moral views on certain issues and trustees should therefore be careful “in relation to making decisions as to investments on purely moral grounds.


Overall, charity trustees are required to formulate an investment policy that is in the best interest of the charity and its charitable aims. The judgement does not give clear guidance on how trustees should assess the potential financial impact of embedding non-financial criteria in their investment policies.

However, trustees who balance all relevant factors properly and adopt a proportionate investment policy that they believe is in the charity’s best interests are likely to comply with their legal duties.

Charity Commission guidance is currently being updated, following a consultation in 2021 and the draft guidance for consultation is available here.