A landmark High Court ruling yesterday confirmed that trustees of charitable trusts can now prioritise the climate change outcomes of their investments, even if it risks reducing financial returns.
Mr Justice Michael Green approved the investment policies of two trusts that had aligned their targets to combat climate change, saying that the claimants were reasonable in their assessment that there needs to be a “dramatic shift” in investment policies to reach the climate targets set out by the Paris Agreement.
The Charity Commission welcomed the decision, and is already working on new guidance for trustees.
Charity trustees can now align their investments with the goals of the Paris Agreement to avoid the worst impacts of climate change, even where this involves financial risk by excluding a large part of the market.
With charities in England and Wales holding over £150bn in long term investments, this decision could have a significant impact.
However, this also opens charities with investment holdings up to increased reputation risk.
There is growing sensitivity around the climate crisis, with people now expecting brands, governments and charities to do more to take action. As trustees, you are expected to act in a way that aligns with the values and causes that the charity stands for, and with people now having a clearer understanding of the social and environmental issues associated with climate change, your supporters and stakeholders are more likely to be taking a close look at your investment decisions and asking tough questions about your choices.
Consumers now expect transparency from the brands they buy from. Not just in terms of how their products are made or where they come from, but around their sources of investment too. Alt-milk brand Oatly found themselves in hot water when they took investment from a fund that supporters believed didn’t align with their core values. And with several large charities weathering public scandals in recent years, these demands for transparency aren’t reserved for the corporate sector.
If your charity’s investment portfolio or approach isn’t aligned to your ESG strategy, now is the time to step back and review how to bring the two together.
Of course, this will be of particular interest (and concern) to environmental charities, but with 80% of UK residents reporting at least some concern about climate change (Statista, 2021), all trustees with responsibility for investment holdings should be considering the sustainability of their fund management, and preparing to explain to supporters and stakeholders.
Now is the time to update your ESG commitment, decarbonise your investments, and reassess your financial, sustainability and reputation risks.
At 181st Street, we are specialists in stakeholder communications, risk management and crisis PR. Our ESG experts can ensure your policies are robust, and our investor relations and finance communications division can help you communicate your financial decisions to align with your ethical and sustainable commitments. And should you find yourself facing tough questions from supporters, stakeholders or the media, our crisis team can walk you through it and keep your reputation intact.
If you’d like to explore how we can support your charity, please get in touch.