In his judgment in Butler-Sloss & Ors v The Charity Commission for England and Wales & Anor [2022] EWHC 974 (Ch) (29 April 2022), Mr Justice Michael Green summarises the law in relation to charity trustees taking into account ‘non-financial considerations’ when exercising their powers of investment.[1]

In this explanatory note, we highlight the ten key legal principles the judge outlines as applying to charity trustees when investing – shown in italics below and extracted verbatim from paragraph 78 of the Butler-Sloss v Charity Commission judgment – together with a brief explanation of each of the principles. The judgment clarifies the law on investment powers for the benefit of charities generally. The legal principles set out by the judge apply now to charity trustees and take precedence over guidance.

Where text is set out in bold or is underlined, this is our emphasis.

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Charity investments – the legal principles

1. Trustees’ powers of investment derive from the trust deeds or governing instruments (if any) and the Trustee Act 2000.

In the case of charities with corporate legal structures, the Trustee Act 2000 will not apply to the charity’s corporate property and the investment powers will be set out in the relevant governing document.

However, charity trustees of corporate structures, such as companies, will as a matter of prudence likely wish to observe the principles set out in the Trustee Act 2000 which will likely apply by analogy.

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.

The starting point for trustees ought to be the charitable purposes. Taking an ‘intentional’ approach to investment, which involves starting with the charitable purposes when formulating and reviewing an investment strategy, is an approach which reflects the trustees’ overarching duty. The power to invest should not be used in a way which undermines or does not serve 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.

To date, trustees have typically used the investment power to seek the maximum available risk adjusted financial return. In practice, ‘maximising’ financial return in this way has meant seeking to diversify the investment portfolio across a spread of suitable investments. If an exclusively financial approach to investment is followed it must be because the trustees calculate – acting honestly, reasonably (with all due care and skill) and responsibly – it is in the best interests of the charity and its purposes. Importantly, the judgment confirms that maximising financial returns is not mandatory.

However, in practice, trustees may need to consider other matters, including potential conflicts and reputational and relational risks, which point away from an exclusively financial approach to investment.

4. Social investments or impact or programme-related investments are made using separate powers than the pure power of investment.

The Butler-Sloss v Charity Commission case concerned the general power of investment and its relationship to charitable purposes. The legal principles set out in it do not therefore generally concern the exercise of other powers, such as the statutory social investment power or a charity’s grant-making power. These alternative powers will likely be engaged, instead of the general power of investment, where an investment is made (a) specifically with a view to (i) achieving a financial return and (ii) directly advancing the charity’s purposes or (b) wholly in advancement of the charity’s purposes, with some expectation of financial loss.

5. Where specific investments are prohibited from being made by the trustees under the trust deed or governing instrument, they cannot be made.

It is possible to structure charitable constitutions, whether at formation or by subsequent amendment, to exclude certain classes of investment, such as investments considered to be in direct conflict with the charitable objects. The same principle is likely to apply in other trust and fiduciary contexts.


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.

Trustees will need, acting reasonably, to consider and determine whether certain investments or classes of investments have the potential to conflict with the charitable purposes of the charity. This will involve case-by-case analysis of the charitable purposes in question, against the investment universe. It will likely involve consideration of relevant evidence, such as was the case in Butler-Sloss v Charity Commission, where the trustees decided to place reliance on reports of the Intergovernmental Panel on Climate Change and concluded that investments which are not aligned with the Paris Agreement goals were in direct conflict.

Where the trustees conclude that there is a potential for conflict, trustees are not duty bound to exclude investments. However, where the trustees conclude that there is a ‘direct conflict’ with the charitable purposes – where investment would by its nature oppose the charitable purposes, as the trustees of the claimant charities determined in the case – trustees are obliged to carry out a balancing exercise. The existence of the direct conflict is likely to be the most significant factor in any balancing exercise and so the direct conflict should be avoided if possible[2].

In other cases of potential conflict, the trustees should weigh up and balance all relevant factors. This balancing exercise should include particular reference to the ‘likelihood and seriousness’ of the potential conflicts and the potential financial effects of exclusion. It is for trustees to judge the existence, likelihood and seriousness of relevant factors and how to balance them but trustees cannot ignore relevant factors.

Where an investment is likely to seriously conflict with the purposes of the charity, before pursuing a strategy of engagement to reduce or remove the conflict, it would be prudent for trustees to consider whether such a strategy is likely to successfully reduce or remove the conflict in the circumstances.

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.

Relevant factors for the trustees to consider and weigh up when deciding whether or not to make or exclude an investment include any reputational or relational risks which are relevant in the context.

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.

Trustees are obliged to act in the way they consider in good faith most likely to advance the purposes of the charity. It will often be the case that moral considerations are wholly aligned with the protection and advancement of charitable purposes. However, trustees must be careful in relation to ‘purely’ moral grounds for decision-making – which are independent of the charitable purposes and reputational or relational considerations – where there are a wide range of different views on the relevant moral issue. The position might be different where there is a strong societal consensus on a particular moral issue and there would be reputational or relational risks if the charity was not to take a moral position.

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.

An investment policy must be formulated in the way the trustees consider – acting honestly, reasonably and responsibly – to be in the best interests of the charity and its purposes. Where there are questions of potential conflict or reputational risk, the trustees need to balance these considerations alongside any relevant financial considerations when deciding what investment approach is in the best interests of the charity and its purposes. These requirements extend to any decisions about whether or not to pursue a strategy of engagement or divestment with respect to any investments held by the charity, as well as any decision to invest in ways calculated to generate positive impacts alongside returns.[3] Any positive impacts which might be available for the benefit of the objects will be a relevant factor.

Where an investment is held by a charity specifically to enable the charity to engage with the relevant company, it is unlikely that the acquisition of the investment will involve an exercise of the ‘pure’ investment power but will likely involve the exercise of other powers, such as to acquire assets or to carry out any other acts which are incidental to the advancement of the purposes.

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.

Butler-Sloss provides comfort that there is no single ‘right’ investment policy for trustees to adopt. Trustees who apply themselves properly and reasonably to the task of balancing all relevant factors in formulating an investment policy which they believe in good faith to be in the best interests of the charity’s purposes should, in doing so, fulfil their legal duties.


[1] See paragraph 78 of the Butler-Sloss v Charity Commission judgment

[2] See paragraph 72 the Butler-Sloss v Charity Commission judgment

[3] It is possible such an approach might involve a combination of the use of a general power of investment and the use of the statutory social investment power under s292B of the Charities Act 2011.