The Charity Commission has removed the terms “ethical” and “responsible” from its draft updated investment guidance.
Its draft guidance is less than a quarter of the size of the document it is set to replace, now running to 5,600 words.
The Commission said its updated guidance reflects the Butler-Sloss judgment from last year, which ruled that charities can exclude a large part of the investment market in an effort to combat climate change.
In a blog published yesterday, the regulator announced it was “road-testing” the new guidance with around 1,000 charities before publishing a final version in the summer.
Retiring ‘out of date’ terms
The blog, by the Commission’s director of communications and policy, Paul Latham, says the new guidance will remove terms that are “out of date or create confusion”.
“These include the terms ‘ethical’ or ‘responsible’ investments – during a previous consultation charities gave us feedback that these terms were not as clear and inclusive as they could be,” Latham wrote.
“The new draft guidance instead emphasises that trustees must ensure that, ultimately, the investment approach operates for the benefit of their charity once they have considered all relevant matters.
“In the context of financial investments, this may lead them to choose to exclude certain investments due to non-financial considerations, or to solely focus on financial return that maximises investment income to spend on their charity’s purpose.”
“Mixed-motive” and “programme-related investment” will also be retired as terms as they are “forms of social investment”, the blog says.
Butler-Sloss judgment
The Commission published a response to the Butler-Sloss judgment in November, which said that “charities can continue to rely on the legal position” in the regulator’s current CC14 guidance when making investment decisions.
In response, Bates Wells wrote to the Commission on behalf of the Aurora Trust and Mark Leonard Trust, both of which were claimants in the Butler-Sloss case, expressing “concern about the accuracy and lawfulness” of it.
The RSPB and the Good Law Project also wrote to the Commission, saying their update “misstates the obligations of charity trustees and is in clear direct conflict with the judgement”.
Latham’s blog says the Butler-Sloss judgement “offered welcome clarification of how existing legal principles should be interpreted by trustees in a modern context”.
“It confirmed that trustees have wide discretion in making investment decisions, for example, in deciding to exclude certain investments based on non-financial considerations,” he said.
“It also confirms trustees can equally choose to focus just on financial return – ultimately what is appropriate for charities may differ. We have ensured that our updated guidance reflects that judgement.”
The Aurora Trust said it had not been sent a copy of the draft guidance.
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