Charities, green groups, and faith organsiations call for Charity Tribunal to provide clarity on their fiduciary duty with regards to climate risk
A coalition of UK charities, faith groups, and green NGOs have today called on the Charity Commission and Attorney General for legal clarity on whether third sector organisations should continue to invest companies "that contribute to dangerous climate change".
In an open letter published today, the group argues existing charity law on fiduciary duty is "outdated and insufficient", warning there is "a risk that charity trustees misinterpret their duties" by investing in companies which have business models that are incompatible with the Paris Agreement.
The letter notes that any global average temperature increases above 1.5C "present substantial risks to the overall economy as well as to individual investment portfolios", arguing that such investments may undermine many charities' key aims.
They are therefore urging the Charity Commission and Attorney General to refer the issue to the Charity Tribunal for an "urgent and definitive ruling" on whether charities should ensure their investments support their duty to provide public benefit, as well as legal guidance for charities on whether they should be invested in high-carbon companies.
Backed by specialist law firm Bates Wells, the letter has been signed by a wide range of charities, faith groups, and campaigning bodies, including ClientEarth, RSPB, the Joseph Rowntree Charitable Trust, Nesta, Ashden Trust, the Ecumenical Council for Corporate Responsibility, and Quakers in Britain.
Lord Williams of Oystermouth, the former Archbishop of Canterbury, also gave his support to the letter. "Investment policy has become a crucial area of moral debate at a time when we are at last recognising the urgency of issues around climate change," he said. "It is now of real importance that charity law should be clarified in a way that acknowledges the need to align investment practice with the imperatives of responsibility to and for our global environment."
However, while the Charity Commission for England and Wales welcomed the letter and expressed sympathy with its calls for greater clarity, it said a Tribunal would be costly and could deliver an uncertain outcome.
Philanthropic organisations have combined investments of £63bn in the UK and $1.5tr globally, according to the Harvard Kennedy School's 2018 Global Philanthropy Report.
But despite growing public awareness and scrutiny of businesses', governments' and organisations' ethical investment practices, there is still no UK legal requirement for charities to have a responsible investment policy, today's letter explains.
It states: "Until charity trustees are at the very least encouraged to review consistency between their charity's objects and choice of investments, there is a real risk that more charities will be subjected to this level of public scrutiny and stories of this kind will continue to damage public trust and confidence in charities and draw accusations of hypocrisy and inconsistency."
The groups behind the letter argue current Charity Commission guidance is based on case law dating back to 1991, long before climate change became a key public policy issue and huge leaps in scientific understanding of its impacts on the planet.
They argue that if a Tribunal were to take place on the issue, it could conclude that charity trustees are in fact prohibited from making investment which directly conflict with their charitable aims. They are also urging other charities and interested parties to support their call.
Professor Nicholas Stern, chair of the Grantham Research Institute on Climate Change and the Environment at LSE, said it was "entirely logical" that charities' investment decisions should also promote public benefit.
"The new and cleaner form of growth will be sustainable and inclusive, and very attractive, and the associated investments are likely to show a better risk-return profile for charities than those in old-fashioned, dirty and risky activities," he said. "Charities can and should lead by example, and need stronger and clearer guidance on their investment decisions."
Rebecca Fry, head of legal policy at the Charity Commission, expressed agreement that public attitudes to ethical investment by charities "have moved on" over the past 20-30 years, and that she was therefore "sympathetic to calls for greater clarity for trustees".
However, she said refering the issue to the Tribunal "could be costly, time-consuming and its outcome, by definition, uncertain".
"There are other options to consider which might achieve a better outcome and greater clarity and confidence in the scope trustees have for investing their charity's money in line with their purposes, ethos and values," she argued.
The Attorney General's office was considering BusinessGreen's request for comment at the time of going to press.
The wider investment sector has long wrestled with the question of whether fiduciary duty precludes or requires firms to engage more fully with climate risks and reduce their exposure to polluting firms. As such sustainable investors and campaigners have repeatedly called for greater clarity from policymakers, regulators, and authorities, securing significant progress in recent years through US SEC guidance, improved reporting rules, and the work of the Taskforce on Climate-related Financial Disclosures.
But the charitable sector with its massive investment funds and clearly defined charitable purpose risks remaining a blindspot for climate risks, when it should be playing a leading role in the low carbon transition. Whether clarity is provided through a Tribunal or an alternative approach, clear confirmation that fiduciary duty obliges firms to engage with, and not ignore, climate risks can not come soon enough.
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