This blog was co-authored by Bwanika Lwanga, Candidate Attorney
The English judgment of Butler-Sloss & Ors v The Charity Commission for England and Wales & Anor [2022] EWHC 974 (Ch), considered the question of whether the trustees of two charitable trusts could adopt investment policies that exclude profitable potential investments on the basis that the investments would conflict with the principal purposes of the charities which are environmental protection and the relief of poverty.
In dealing specifically with the power of investment and the area of ethical investments, the court stated that the power of investment must be exercised to produce the best return for the beneficiaries and maximise financial return as a starting point. Those best interests require that the trustees’ choice of investments be made on the basis of well-established investment criteria in light of expert advice where appropriate. Due regard needs to be given to the need to diversify investments, the need to balance income against capital growth, and the need to balance risk against return.
However, where trustees are of the view that particular investments have the potential to conflict with the trust’s charitable purposes, the trustees have the discretion to exclude such investments after balancing all relevant factors such as the likelihood and seriousness of the conflict in question and the likelihood and seriousness of any potential financial implications of the exclusion of such investments. Similarly, trustees should be cautious not to exercise the power to investment on purely moral grounds because the nature of such charities is such that their supporters and beneficiaries may hold differing legitimate moral views on certain issues.
At its core, trustees must act honestly and with the expected level of due care and skill in adopting an appropriate investment policy. Where there are difficult decisions to be made involving potential conflicts, the trustees need to exercise good judgment by way of balancing all relevant factors, particularly the extent of the potential conflict against the risk of financial detriment. The primary and overarching duty of trustees is to act in a manner that furthers the purposes of the trust. Trustees should also evaluate the effect of any proposed policy on potential investment returns and balance any risk of lower returns against the risk of alienating support or damage to reputation.
The judgment provides some insight into the fiduciary duty of trustees of South African funds, such as provident funds, and trusts when considering investments. Trustees must ensure that investment decisions are in the best interests of the fund or trust and of the members or beneficiaries.
