In April this year the Charity Commission launched a consultation seeking views on its proposed revised guidance about adopting what it calls a 'responsible investment ' approach when investing charity funds.
Alongside the guidance for consultation, the Commission published an updated 'Legal Underpinning' document. The document sets out the Commission's updated interpretation of the Bishop of Oxford case which is the key legal authority on the investment powers of charity trustees. That case determined that the purposes of a charity are usually "best served by the trustees seeking to obtain [from the investment of charitable funds] the maximum return, whether by way of income or capital growth which is consistent with commercial prudence" and that trustees "must not use property held by them for investment purposes as a means for making moral statements at the expense of the charity of which they are trustees."
However, the Bishop of Oxford case was decided nearly thirty years ago and many feel it is now outdated given the shift to ESG focus. In the Legal Underpinning document, the Commission have set out their updated interpretation of the case, namely that it only applies to charities with a duty to invest (as with permanent endowment). Where there is no duty to invest, the Commission's view is that legislation passed since the Bishop of Oxford case was decided supports there being a broader legal framework for responsible investment: "The usual starting point (except where there is a duty to invest) is that trustees are free to decide whether to spend money or invest it". The revised guidance on which the Commission is consulting is based on its revised interpretation of the law.
However, this revised interpretation will be judicially scrutinised in proceedings to be brought in the High Court by a group of charity trustees. The trustees are seeking clarity from the Court on the nature and scope of charity trustees' powers of investment and whether if they adopt investment policies that are consistent with, for example, the UN Convention on Climate Change, will this be consistent with their trustee duties if it means lower investment returns?
In April, Michael Green J handed down a decision allowing the trustees to bring the proceedings, after the Commission had put its decision on whether to grant permission on hold. The basis of the Judge's decision was that the proceedings raised highly topical issues. In particular, he noted that the fact the Commission has produced revised guidance based on an updated interpretation of the Bishop of Oxford case highlights the need for legal clarity, rather than removes it.
In May, the Charity Commission updated its consultation information to clarify that it would continue with its responsible investment consultation in spite of the legal proceedings which are likely to be held later this year: "We still plan to publish a summary of the consultation responses in the summer. As the court's decision may affect our draft guidance we will consider any further steps once the court has given its judgment."
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