The High Court has reinterpreted a 30-year old judgment which mandated that charity trustees maximise return on investment except in circumstances where to do so would conflict with the charities' purpose.
Justice Michael Green recently approved investment policies drawn up by two charities that excluded investments that were considered to contribute towards climate change.
The Charity Commission has welcomed the ruling.
Aarti Thakor, director of legal services at the Charity Commission, said: “We are pleased that the judge found, in line with our proposed guidance, that trustees can continue to have wide discretion when choosing to invest ethically.
“The judge confirmed that the law relating to trustees’ powers of investment should be suitable for all types of charities, offer flexibility and sustainability, and ensure the furtherance of a charity’s charitable purposes.
“We will be publishing our updated guidance in due course to ensure trustees can confidently adopt appropriate policies including in the context of pressing concerns around climate change.”
Sarah Butler-Sloss, founder of the Ashden Trust, said: "I’m delighted the High Court endorses our view that investments not aligned to the goals of the Paris Agreement conflict with our charitable work to alleviate poverty and protect the environment. We can now exclude them from our portfolio.
“This judgment empowers trustees of other charities that care about the state of the planet and all its inhabitants to invest in a way that mitigates the worst impacts of climate change.”