The UK’s High Court has said that trustees for two Sainsbury Family Charitable Trusts can align their investments with the Paris climate agreement, a decision the charities have said potentially signals a “dramatic shift” in investment practice for the sector and one that could influence interpretations of fiduciary duty by other investors.
Mr Justice Michael Green on 29 April approved the Paris-aligned investment policies of the Ashden Trust and the Mark Leonard Trust, stating: “The claimants have decided, reasonably in my view, that there needs to be a dramatic shift in investment policies in order to have any appreciable effect on greenhouse gas emissions and for there to be any chance of ensuring that there is no more than a 1.5°C rise in pre-industrial temperature.”
The only question, he wrote, “is whether they have sufficiently balanced that objective with any financial detriment that may be suffered as a result… In my view they have and the performance of the portfolio will be tested regularly against recognised benchmarks and will seek to provide the financial return specified in the proposed investment policy”.
The trustees, who were represented by London-based law firm Bates Wells & Braithwaite, had their case against the Charity Commission for England and Wales and Her Majesty’s Attorney General heard early in March.
“In blessing the policies, the judge endorsed the trustees’ prioritisation of Paris-alignment ahead of seeking the maximum risk-adjusted financial return and so protected the trustees’ exercise of discretion,” Luke Fletcher, one of the solicitors at Bates Wells who led the legal action, told Responsible Investor.
He added: “The judge has in effect provided the authority for other trustees to follow suit and align with the Paris goals or invest in ways which mitigate other conflicts with charitable objects, rather than seeking maximum return.”
On the wider implications of the case for fiduciary duty, Fletcher said there are principles which are “likely to apply to other categories of investors, like the confirmation that trustees can exclude certain kinds of investments where that is set out in the relevant trust deed or constitution and where the beneficiaries provide consent”.
“The judgment may also be relevant and influential where there are conflicts between the financial and other interests of clients and beneficiaries in other fiduciary and investor contexts,” he continued.
Ben Jaffey QC, who represented the Charity Commission, argued that there was no evidence the trustees had considered alternative engagement strategies to bring about change at investee companies rather than divestment. But the judge ruled that criticism “unfounded”.
The ruling is purported to be the first time a UK court has confirmed that trustees can adopt such investment policies and reinterprets case law dating back to 1992.
According to a blog by the Charity Commission from 2020: “Trustees have a duty to maximise the financial returns generated from the way in which they invest their charity’s assets.”
But it added: “The law is clear that charities can take ethical and other non-financial considerations into account when deciding how to invest their assets in a number of scenarios, such as where there is a conflict with the charity’s purposes; where the investments would hamper the charity’s work; or where there is no risk of significant financial detriment.”