Fiduciary duty is not incompatible with impact investment – but, unfortunately, this remains a pervasive misconception. Now, with the publication of the judgement in the case of Butler-Sloss v Charity Commission, a decisive step has been taken towards dispelling this myth for good in the £72bn UK charitable foundation sector.
On 29th April 2022, Mr Justice Michael Green handed down his judgement ruling that trustees have the discretion to exclude investments that they reasonably believe may conflict with their charitable purposes. The case was brought before the court by trustees of the Ashden Trust and the Mark Leonard Trust in early March and centred around the approval of investment policies drawn up by the two charities.
Crucially, these policies were designed to be aligned with the goals set out in the Paris Agreement and excluded investments which were considered to contribute to climate change, using reports from the Intergovernmental Panel on Climate Change as their evidence base.
The case sought legal clarity on the rights and responsibilities of trustees considering a responsible investment approach – defined as an approach incorporating environmental, social and governance factors into investment decisions and active ownership. Following the judgement of Butler-Sloss v Charity Commission, trustees can be confident in weighing up financial return considerations against potential conflicts with their charitable purpose.
This is not limited to divestment. In his judgement, Mr Justice Michael Green summarised the ten key principles he considered to underpin the law1 in this area. The seventh states: “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. [emphasis added].”
The judge also laid out in simple terms the reasoning behind his decision: “The Claimants have decided, reasonably in my view, that there needs to be a dramatic shift in investment policies in order to have any appreciable effect on greenhouse gas emissions and for there to be any chance of ensuring that there is no more than a 1.5°C rise in pre-industrial temperature. The only question is whether they have sufficiently balanced that objective with any financial detriment that may be suffered as a result. In my view they have.2”
This highlights the core nature of the judgement – that to fulfil their fiduciary duty, trustees must exercise good judgement by balancing all relevant factors, particularly the extent of any potential conflict of their charitable purposes against the risk of financial detriment.
This judgement is a vital step forward in empowering trustees to consider the social, as well as the environmental, impacts of their investments. In partnership with the charitable foundation sector, we have been working to break down barriers to impact investment and motivate foundations to increase the volume of charitable endowment assets invested for positive social and environmental impact as well as financial return.
Key to this programme has been the publication of resources, reports and research designed to help endowments to adopt an impact investing approach: from case studies of existing pioneers to a practical guide for foundations, an explanatory legal paper and a downloadable presentation designed to facilitate conversations about impact within foundations themselves.
We hope this court case will continue the momentum towards investing with impact across the charitable foundation sector.
For more information about our work on endowments with impact, and to access all the resources referenced above, please visit our endowments project page.
 The principles can be found at paragraph 78 of the judgement: https://www.bailii.org/ew/cases/EWHC/Ch/2022/974.html
 Paragraph 87, https://www.bailii.org/ew/cases/EWHC/Ch/2022/974.html