Butler-Sloss v The Charity Commission: ESG investment guidance in need of elaboration

Abstract

Abstract In Butler-Sloss v The Charity Commission the High Court granted the trustees of environmental protection charities permission to enact a policy that excluded investments incompatible with the Paris Climate Agreement. Though a sound conclusion, the court’s reasoning, when taken alongside the policy proposed by the claimant charities, generates investment guidance that is unsuited for practical implementation. This article commences with an analysis of the judgment’s approach to risk and returns. Although the court’s position on reputation risk is commendable, the dicta focusing on portfolio risk, as well as the lack of distinction between income and capital returns, introduce serious liquidity threats. These difficulties undermine the institutional relevance of the charitable trust. In its second part the article advances to explore the court’s overextension of the powers of trustees to invest on moral grounds. At best this extension conflicts with a trustee’s duty to diversify their fund’s portfolio, and at worst it risks allowing trustees to completely bypass financial considerations. It is concluded that more elaborate ESG investment guidance is needed.