Coalition demands landmark ruling on £63bn of charity investments for public benefit

A coalition of leading charities and faith groups in the UK have this week released open letters to the Charity Commission and Attorney General calling on them to seek a landmark ruling on these questions from the Charity Tribunal. They warn that current law on charity investments is outdated – and there is a risk that trustees misinterpret their duties.

The move follows recent controversies over high-profile charities holding investments that conflict with their aims. A ruling would affect £63bn of philanthropic investments in the UK and send a powerful signal to all institutional investors about how to align investment with the good of society.

Asking for specific legal guidance on whether charities should invest in companies that contribute to dangerous climate change, the coalition notes that temperature rises above the UN target of 1.5°C “present substantial risks to the overall economy as well as to individual investment portfolios” and “may undermine the very aims many charities exist to achieve”.

"A court might conclude that there is some form of presumption that a charity investor's investment strategy outght to be compatible with a transition to a '1.5C world," they say in an open letter signed by major charities and faith groups, including the RSPB, Joseph Rowntree Charitable Trust, Nesta, Ashden Trust, ClientEarth, the Ecumenical Council for Corporate Responsibility and Quakers in Britain.

They warn there is “a risk that charity trustees misinterpret their duties” because the current law is “outdated and insufficient”, and they call on the Attorney General and the Charity Commission to refer the issue to the Charity Tribunal for an urgent and definitive ruling.

In October 2018 the UN Intergovernmental Panel on Climate Change warned that the world has just 12 years to limit climate change to 1.5°C. Even an extra half degree of global warming would significantly increase the risks of drought, floods, extreme heat and poverty for hundreds of millions of people, it said.

Lord Williams of Oystermouth, the former Archbishop of Canterbury, said: "Investment policy has become a crucial area of moral debate at a time when we are at last recognising the urgency of issues around climate change. It is now of real importance that charity law should be clarified in a way that acknowledges the need to align investment practice with the imperatives of responsibility to and for our global environment."

It is now of real importance that charity law should be clarified... to align investment practice with the imperatives of responsibility to and for our global environment. 

Chris Kavanagh, Goldman Sachs, Charity Investment Group, said: “Mobilising capital to address climate change will require all corners of the investment community – public, private and third sectors – to accelerate investments in projects that reduce emissions and minimise the impacts of global warming. Charities and their capital can play a central role in the low carbon transition and their choices will send a powerful signal to all institutional investors about how to align investment with the good of society.”

Philanthropic organisations have combined investments of £63bn in the UK and $1.5tn globally, according to the Global Philanthropy Report, 2018 from the Hauser Institute for Civil Society, Harvard Kennedy School. These investments have come under increasing scrutiny in recent years, and a number of well-known organisations have faced media criticism for holding shares in companies whose activities conflict with their public statements and charitable aims.

However, despite growing public expectations, there is currently not even a regulatory requirement for charities to have a responsible investment policy, requiring them to consider how certain investments may support or undermine their goals.

The open letter says: “Until charity trustees are at the very least encouraged to review consistency between their charity’s objects and choice of investments, there is a real risk that more charities will be subjected to this level of public scrutiny and stories of this kind will continue to damage public trust and confidence in charities and draw accusations of hypocrisy and inconsistency.”

Until charity trustees are encouraged to review consistency between their charity’s objects and choice of investments... stories of this kind will continue to damage public trust.

Luke Fletcher, partner at law firm Bates Wells, who drafted the letter, said: "Members of the coalition have a real commitment to seek a landmark judgement on responsible investment. They believe the Charity Commission should take the lead by making a reference to the Tribunal itself. However, the coalition is determined to explore every avenue available to obtain legal clarity for trustees and there is always the option of seeking a declaration from the courts on their own initiative, if the Commission does not make a reference directly."

The campaign has won the support of NCVO, the umbrella body for the voluntary sector, with over 14,000 member organisations. Stuart Etherington, CEO of NCVO, said: “We’re backing this move because it would be enormously helpful for charities to have greater clarity in this area. What’s right for one organisation may not be right for another. Trustees would find it reassuring to be confident that they have the latitude to invest in the way that they think best reflects their charity’s strategy, values and mission.”

Case law overtaken by scientific evidence on climate change

Charity Commission guidance is based on case law dating back to 1991, before climate change was an important public policy issue and before charities were seriously wrestling with questions about whether their aims could be undermined by their investments, for example in companies with carbon-intensive activities, offering payday loans, or marketing high sugar foods to children.

Since then case law has been overtaken by a vast increase in scientific evidence about the impacts of climate change, as well as important legislative and market developments. “We believe that a Tribunal would conclude that charity trustees are in fact prohibited from making investments which directly conflict with their charitable objects,” the coalition says.

The 2016 Charities Act, for example, essentially equates the interests of a charity with the degree to which an investment advances its charitable goals.

The Charity Commission’s Statement of Strategic Intent, published in October 2018, says it must “ensure that charities show they are being true to their own purposes, can demonstrate the difference they’re making, and meet the high expectations demanded by the public”.

The coalition commentsed “To invest in a manner, contrary to the very purposes for which a charity exists, is likely to be detrimental to the public trust that is so important to the development and success of charities as a whole.”

The Charity Commission gives guidance to charities, but it is unable to pronounce authoritatively on the nature of the law governing duties of trustees. The Charity Tribunal exists to clarify important aspects of charity law, and the Commission or the Attorney General can refer questions. Charities can also seek a declaration directly from the High Court in certain circumstances, with the permission of the Commission.

Profession Nicholas Stern, chair of the Gramntham Research Institute on Climate Change and the Environment, said: "Charities exist for the public benefit and it is entirely logical that their investment decisions should also promote the public benefit. Over the coming decades the world will make massive investments in the global economy, particularly in infrastructure and productive capital. How we make those investment decisions is critical for the future of our planet. We will either lock in sustainable prosperity or follow something like current paths which would involve unprecedented environmental risks for our children and grandchildren. The new and cleaner form of growth will be sustainable and inclusive, and very attractive, and the associated investments are likely to show a better risk-return profile for charities than those in old-fashioned, dirty and risky activities. Charities can and should lead by example, and need stronger and clearer guidance on their investment decisions."

Mark Sainsbury, trustee of the Mark Leonard, JJ Charitable and Linbury Trusts, said: "Responsible investment is an issue that charities and philanthropic organisations cannot ignore. After all, they exist to benefit society and should not profit from investments that do precisely the reverse.  This is an arena in which charities and foundations should be playing a leadership role and setting the standards for financial institutions and the wider public to follow."

Alice Garton, Head of Climate at ClientEarth, said: “Charity trustees have legal duties to seek financial returns from investing a charity’s assets but they also have duties not to make any investments which might conflict with its charitable purpose. A lack of clarity around how these concurrent legal duties should be balanced is fuelling uncertainty for trustees and increasing the risk of their decisions being called into question later. By clarifying how trustees should approach this issue, the Charity Commission and Attorney General can provide much-needed certainty as well as positive support for investment in a safe and secure future.”  

The coalition said it was united in the belief that the question of whether and how charities should align their investments with their objects and their commitment to benefit wider society was a question of outstanding public interest that needs urgent resolution. It believes the Tribunal is the best forum to assess the arguments and evidence and provide an authoritative and independent view. However, it added that members adopt a range of approaches to responsible investment and joining the coalition “does not commit them to supporting a particular position on how charities should invest”.

The coalition has invited other charities and interested parties to join and support the call for the tribunal to give a contemporary ruling. Copies of the open letters and the invitation to join the call are available online.