A landmark High Court ruling today has confirmed that trustees of charitable trusts are allowed to prioritise the climate change outcomes of their investments even if it risks reducing financial returns. With charities in England and Wales holding over £150bn in long term investments, the decision could have a significant impact.
Mr Justice Michael Green today approved the investment policies of the Ashden Trust and the Mark Leonard Trust, affirming that charity trustees can align their investments with the goals of the Paris Agreement to avoid the worst impacts of climate change, even where this involves financial risk by excluding a large part of the market. Bates Wells acted for the claimants.
This decision reinterprets the principles established in the 1992 Bishop of Oxford case (in which Bates Wells also acted). The Bishop of Oxford case did not consider climate change but concluded at the time that charity trustees should maximise return on their investments and ought not to take into account ethical or moral considerations that could cause financial detriment to the charity – except in supposedly ‘rare’ circumstances where an investment directly conflicts with the charity’s purposes or indirectly conflicts with its work.
Luke Fletcher, partner at Bates Wells, representing the Ashden Trust and the Mark Leonard Trust, says: “We’re delighted at today’s ruling which reinterprets the fiduciary duty of charity trustees in a way that’s fit for the 21st century.
“Our clients’ approach to investment is based on scientific evidence of the effects of climate change. The court has endorsed the alignment of the trusts’ investments with the goals of the Paris Agreement. Charity trustees are now clearly empowered to give full weight to concerns arising from climate impacts and other harms caused by investments when deciding how to invest.”
“This ruling clarifies the law and redefines fiduciary duty, in the light of climate change and more broadly, for the benefit of all charities. It is also likely to be influential in other jurisdictions and will be of interest to other categories of investors.”
“It is now for the Charity Commission to update its guidance Charities and investment matters: a guide for trustees (CC14). However, the judgment sets out the law, which has priority over guidance, and applies to all trustees immediately.”
You can read the judgment here.