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The Charity Commission continues consultation on its revised responsible investment guidance

  • United Kingdom
  • Corporate
  • Education - Briefings

27-05-2021

The Charity Commission (“Commission”) recently confirmed that it would continue with its consultation seeking views on the clarity of its draft revised guidance for charity trustees in respect of adopting a responsible approach to investing charity funds. The consultation continues despite a pending case in the High Court in which two charities are seeking to clarify the law governing responsible investments.

Background

The Commission’s current guidance, Charities and investment matters: a guide for trustees (CC14), assists charity trustees by helping them understand, and comply with, the law that applies to their charity in respect of the making of investments. As charity trustees are responsible for how they invest their charity’s assets, they must comply with the applicable law. The law in this area is contingent on a number of factors including the charity’s legal form, the investments in question and any restrictions set out in the charity’s governing document (e.g. Articles of Association, Charter or Trust Deed).

The Commission’s consultation

At the beginning of 2020, the Commission indicated that it wanted to gain a better understanding of the barriers that may discourage charity trustees from making responsible investments. An exercise carried out by the Commission identified a number of reasons including: that some charity trustees felt that they had an overriding legal duty to maximise financial returns when making investments; a lack of assurance that trustees can decide to take a responsible approach to investment; a perception that the Commission does not accept that charity trustees are able comply with their legal duties if they adopt a responsible approach; and that the current available guidance lacks practical advice and examples.

The Commission has, therefore, developed updated draft guidance, with the aim of providing clearer guidance on the duties that charity trustees have when making financial investments and the discretion that charity trustees have to decide whether or not to adopt a responsible investment approach.

The Commission began a consultation to address these issues and to inform the production of hopefully clearer and more user-friendly guidance.

The High Court Case

Whilst the Commission’s consultation has been ongoing, in April 2021 two charities were granted permission to bring charity proceedings relating to responsible investment to the High Court.

The two charities, both with general charitable purposes but a focus on environmental protection, wanted to exclude investments that did not align with the 2016 Paris Agreement, relating to climate change.

The charity trustees were concerned whether it was lawful pursuant to their duties as charity trustees to make investments that may result in reduced investment returns by excluding certain assets. As a result, the High Court has granted the charity trustees permission to bring charity proceedings to obtain declaratory relief and directions in respect of their desire to adopt a responsible approach to investing their charities’ funds. It is expected that a court hearing will be heard later this year.

Despite the pending High Court case, the Commission has confirmed that it will be continuing with its  consultation and urged charities and others to respond by their closing date of 20 May 2021. The Commission also confirmed that it plans to publish a summary of the consultation responses in the summer but, as the Court’s decisions may affect the current draft guidance, the Commission will consider further steps once the Court has reached a judgment.

Clarity in this area is to be welcomed and it will be interesting to see what the required nexus will be between a charity’s purpose and responsible investment.