Date updated: Monday 23rd May 2022

On 29 April the High Court handed down its judgment in the case of Butler-Sloss & Others v Charity Commission [2022]. The judgment has provided much needed clarity in relation to the extent to which charity trustees can permit their objects and wider moral considerations to influence their investment policy.


The case was brought by the trustees of two charities, the Ashden Trust and Mark Leonard Trust (“the Charities”), both of which are grant-making organisations. Both Charities have general charitable objects but had chosen to focus on environmental protection and prevention and relief of poverty. Whilst the Charities’ investment policies already excluded certain investments such as fossil fuel companies they believed their current portfolio holding conflicted, or had a potential to conflict, with the charitable purposes they are pursuing and sought to amend their investments accordingly. 

The Charities sought the court’s approval to adopt a new investment policy that was based on a slightly lower rate of return than its current investment but would exclude investments that are not aligned with the goals set out in the 2016 Paris Climate Agreement. The Charity Commission and the Attorney General were joined as parties to the case and also asked the Court for guidance on the proper approach to ethical investment.

The law prior to the case

The law on ethical investment was based on the principles set out in Harries v Church Commissioners for England [1992], also known as the Bishop of Oxford case.

This case set out that the starting point for charity trustees when considering the exercise of their investment powers is maximising financial return. The case also suggested that charity trustees could only decide “to make a financially disadvantageous investment decision for ethical reasons” in extremely limited circumstances where:

  • There is a direct conflict with the charity’s purpose and in such cases trustees “should not so invest”.
  • There is an indirect conflict with the charity’s purpose i.e. where an investment may negatively impact a charity’s work say, by making beneficiaries unwilling to accept help due to the source of the funds or alienating donors due to the investment choices made. Trustees would need to assess whether the detriment caused by the investment would outweigh the gains made from it in deciding whether to exclude the investment from their portfolios.
  • Other situations where excluding the investment would not cause a risk of significant financial detriment. 

It was considered by the trustees that this did not provide a sufficiently clear legal basis on which they could adopt their proposed new investment policies.

Butler-Sloss Judgment

A key question in the case was whether the Bishop of Oxford case imposed an absolute prohibition on investments that directly conflict with a charity’s purpose. The judge decided that the case should not be read as imposing an absolute prohibition in such circumstances but trustees could decide to exclude such investments provided they followed proper decision-making processes. The judge summarised his understanding of the law in this area:

  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 require trustees to consider the suitability of the investment and the need for diversification; applying those criteria and taking appropriate advice 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. 

In considering the law the judge decided that the trustees in the case had exercised their powers of investments ‘properly and lawfully, having taken account of all relevant factors and not considered irrelevant factors’ and made a declaration accordingly.

Next Steps

Whilst the declaration applies only to the Charities, the Charity Commission has confirmed it will amend its guidance (CC14 Charities and investment matters: a guide for trustees) to reflect the guidance set out in this judgment. Meanwhile the judgment provides welcome assurance for charities considering adopting an investment policy that excludes investments which conflict with their objects – provided the decision is entered into in the proper manner. Where there is no such conflict, trustees will need to bear in mind the judge’s caution against making decisions on purely moral grounds.