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Subsequently, we have seen increasing numbers of investors wanting to put their money to work and make an impact on sustainability. And it has been no different with charities.

Last year, much of the charity sector, from trustees to investment managers to charities themselves, was keeping a close eye on the Butler-Sloss versus the Charity Commission case at the High Court, which propelled sustainable investment strategies into the spotlight.

The case was brought by Sarah Butler-Sloss, chair of the board of trustees of the Aurora Trust (formerly the Ashden Trust), one of the Sainsbury Family Charitable Trusts. The trustees wanted to draft a new investment policy that allowed the trust to exclude investing in companies that didn’t align with the 2015 Paris Agreement on climate change. As Sarah Butler-Sloss told an audience at a recent Investec webinar: "We had always been so passionate about solving climate change, protecting the environment and helping the poorest in society but we felt we couldn't justify investing in companies that are the root of the problem."

The trust felt that existing guidance on charity investment decisions, namely CC14, which was based on the findings of a case brought more than 30 years ago by the Bishop of Oxford, was too nuanced for it to make the changes without the risk of falling foul of the rules.

"We had always been so passionate about solving climate change, protecting the environment and helping the poorest in society but we felt we couldn't justify investing in companies that are the root of the problem." - Sarah Butler-Sloss

In 1991, Richard Harries, the then Bishop, challenged the Church Commissioners to change its investment policy to exclude any company supporting apartheid in South Africa. The challenge failed, with the Court finding the existing investment policy to be sound. It concluded that while there may well have been situations where certain investments could be in direct conflict with a charity's objective (investing in arms industry shares by a religious charity, for instance) it would likely be rare and narrow. Given it wouldn't affect many stocks, it wouldn't impact the diversification or return profile of the portfolio to a material extent or hurt financial returns.

The conundrum that trustees of the AuroraTrust and the Mark Leonard Trust (which is also part of the family of Sainsbury trusts) faced was that most listed investments do not align themselves with the goals of the Paris Agreement – many researchers agree that less than a quarter of the market is Paris-aligned in a reliable way. In short, any divestment as such would likely be neither narrow nor rare. Subsequently, the trusts decided to go to the High Court to seek clarification on whether their new investment policies could be adopted to exclude non-aligned Paris Agreement companies – even if it meant there could be a lower return on investments.

Last summer the trusts got their clarification and the High Court gave them its blessing. In his judgment, Mr Justice Green acknowledged that it was reasonable and responsible of the trustees to conclude that investments that are not aligned with the Paris Agreement conflict with the charities' objectives. He added that a dramatic shift in investment policies was needed to have any appreciable effect on greenhouse gas emissions.

Naturally, the trusts welcomed the ruling as it enabled them to implement investment policies which align their portfolios to a 1° world while remaining true to the charities' purposes. As Luke Fletcher, partner at Bates Wells, who represented both trusts in the case, said at our webinar: "It was a significant outcome. The judge said that the ‘primary and overarching duty of trustees is to further the purposes of the trust’ and the power to invest ‘must therefore be exercised to further the charitable purposes’. The judge also said that the trustees' task is to develop an investment policy that is ‘in the best interests of the charity and its purposes’."

Despite the ruling, the charity investment world remains in limbo because there is still a gap between the existing CC14 guidance and the Butler-Sloss ruling. The Charities Commission's current stance is that charities can continue to rely on the legal position in its published CC14 guidance, which it says will be updated "before the summer of 2023.

Many in the sector feel this holding position is unnecessary, unfortunate and problematic. Bates Wells is advising its clients to rely on the principles set out in the Butler-Sloss case, and not CC14. Meanwhile, Sarah Butler-Sloss believes the CC14 guidance is now "misleading" and she is desperately hoping the Commission "does the Butler-Sloss judgment justice" when it publishes its redesigned guidance later this year.

At Investec, we believe the Butler-Sloss ruling has provided trustees with some clarity. We also believe it has provided the Charity Commission with a route to update the guidance in a way that will enable trustees to reflect their values and invest accordingly – while staying true to a charity's objective without compromising their fiduciary duty to generate reasonable financial returns. With sustainable investing here to stay, some refreshed guidance that clears up the ambiguity can't come soon enough.