Trustee investment: ethical investing for charities

Abstract

In his recent judgment in Butler-Sloss & Ors v Charity Commission & Anor,1 Michael Green J opens with the rhetorical question: ‘Should charities, whose principal purposes are environmental protection and improvement and the relief of poverty, be able to adopt an investment policy that excludes many potential investments because the trustees consider that they conflict with their charitable purposes?’2 The same question, albeit in the different context of apartheid South Africa, was posed in Harries v Church Commissions,3 known generally as the Bishop of Oxford case. That judgment set out how trustees should approach the question of whether, in fact, there was a conflict between an investment and the charity’s purposes. Broadly, the court took a narrow approach, referring to cases of cancer charities not investing in tobacco or the Quakers not investing in armament. The judgment in the Bishop of Oxford went on to provide guidance on how the trustee should proceed if and when there is an actual conflict. The resulting investment restrictions or exclusions should be similarly narrow. This was because of the need for diversification, which is central to modern portfolio theory, which trustees are expected to follow.4 Too many investment restrictions and exclusions, for ethical reasons, would or might impact on diversification and thus investment performance. Ultimately maximization of financial returns was the purpose for the investment power.