The Charity Commission has pledged to rewrite its guidance for trustees around investments due to uncertainty among trustees following a landmark legal ruling earlier this year around ethical investments.
The High Court judgement clarifies that decisions around adopting responsible investment policies of charities is a matter of discretion for trustees.
This gives charities the go-ahead to align their investments to counter the impact of climate change, even if it means losing out financially by excluding part of the market.
Following the judgement, known as the Butler-Sloss case, the Charity Commission has admitted that “we recognise that some charities may feel uncertain as to whether” the judgement changed trustees’ legal duties.
As a result, it has promised to rewrite its investments guidance for trustees to offer greater clarity over any decision they take, which could include prioritising ethical concerns over financial profit in their investments.
Prior to this year’s judgement the regulator had looked to update its advice on environmental, social and governance (ESG) issues including their investment approach. However, this process, which had included a consultation, was paused last year due to the court case.
The Commission said that the update “aims to ensure the guidance is easy to follow and enables charity trustees to better understand the law around making financial investments on behalf of their charity.
The final guidance is expected to be published by summer 2023.
Read an update on our investment guidance following the Butler-Sloss case.— Charity Commission (@ChtyCommission) November 16, 2022
The judgment helpfully clarifies how existing legal principles should be interpreted by trustees in a modern context, but does not fundamentally alter them.
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The Charity Commission said that the legal ruling “helpfully clarifies how existing legal principles should be interpreted by trustees in a modern context but does not fundamentally alter them”.
“The redesigned guidance will also incorporate an updated explanation of social investment, which is distinct from financial investment and is currently covered in separate guidance,” it added
“Furthermore, we will ensure the redesigned guidance is accessible, with straightforward structuring and examples where helpful, and using terminology that is best able to convey trustees’ duties clearly in the current context.
“As we consulted on draft guidance prior to the legal case, we will not undertake a further formal public consultation, however a draft of the new guidance will be shared and tested with users and sector experts so feedback can be incorporated before it is finalised.”