Should charities invest in fossil fuels, arms, and tobacco?
Charities hold billions in investments. The divest vs. engage debate asks whether excluding harmful industries or using shareholder power better serves charitable purposes.
The debate in brief
UK charities hold an estimated £100 billion in long-term investments (Charity Commission, 2023). A growing number face pressure to divest from fossil fuels, arms manufacturers, tobacco, and increasingly from tech companies and private equity. The counter-argument is that remaining invested gives charities shareholder power to push companies toward better behaviour. The 2022 Butler-Sloss ruling fundamentally reshaped the legal framework, confirming that trustees can adopt ethical investment policies beyond simply maximising financial returns, provided they can justify the decision in terms of their charity's purposes.
Quick takeaways
| Question | Answer |
|---|---|
| Can charities legally exclude investments on ethical grounds? | Yes. The 2022 Butler-Sloss ruling confirmed trustees can adopt ethical exclusions even at the cost of financial return, provided the policy aligns with the charity's purposes. |
| What does the Charity Commission say? | CC14 guidance states trustees must consider whether any investment conflicts with the charity's purposes. A responsible investment approach is consistent with trustee duties. |
| Have many charities divested from fossil fuels? | Over 100 UK charities and faith institutions have made divestment commitments, including the Wellcome Trust's 2022 decision to halt all direct fossil fuel investment. |
| Does divestment hurt investment returns? | A 2015 meta-analysis of 2,200 studies found no systematic performance penalty from ESG screening. CCLA's ethical fund has performed comparably to non-screened funds over the long term. |
| What is the alternative to divestment? | Active engagement — using shareholder voting and dialogue to influence corporate behaviour on environmental, social, and governance issues. |
| Does engagement actually work? | Sometimes. The Church of England has secured commitments from oil companies on climate disclosure. Critics argue this creates an illusion of progress while harmful activities continue. |
The arguments
The case for divestment
The divestment argument is straightforward: charities exist to serve the public good, and holding investments in companies whose products cause demonstrable harm is incompatible with that purpose. A health charity holding tobacco stocks, a children's charity invested in arms manufacturers, or an environmental organisation profiting from fossil fuel extraction all face the same basic contradiction.
The financial case has strengthened. Carbon Tracker's 2011 "unburnable carbon" analysis argued that fossil fuel reserves are overvalued because most must stay in the ground to meet climate targets, creating stranded asset risk. The global divestment movement now encompasses over $40 trillion in committed divestment (Stand.earth, 2023). The Wellcome Trust's 2022 decision to halt all direct fossil fuel investment was a landmark moment.
The moral argument is that engagement has had decades to work and has not delivered at the pace required. The five largest oil companies spent $200 million on lobbying in 2023 alone (InfluenceMap, 2024). Staying invested to influence companies actively undermining climate policy looks less like strategic engagement and more like complicity.
The weakest point in this argument: divestment shifts shares to buyers indifferent to ethical concerns, leaving harmful companies under less pressure, not more.
The case for engagement
Selling shares does not close a coal mine. When a charity divests, it transfers ownership to another investor — often one with no interest in environmental performance. Engagement uses ownership as leverage.
The Church of England is the most prominent UK practitioner. Its EIAG sets benchmarks and uses shareholder voting, direct dialogue, and the threat of divestment as escalation tools. In 2023, the Church voted against the re-election of Shell's chair over inadequate climate transition planning. The Church Commissioners, managing roughly £10.3 billion, argue that remaining invested gives them a seat at the table that divestment would forfeit.
CCLA, the UK's largest charity fund manager with over £14 billion under management, advocates engagement. Its "Find it, Fix it, Prevent it" initiative on modern slavery has reached over 100 FTSE 350 companies. CCLA argues that divestment is binary — in or out — while real behaviour change requires sustained pressure from within.
The weakest point in this argument: engagement can become an indefinite excuse for inaction, with charities setting vague milestones that companies repeatedly fail to meet while continuing to hold the stock.
The expanding frontier
The debate has moved well beyond fossil fuels. Charities increasingly face questions about technology companies involved in surveillance, data extraction, or AI with military applications. Private equity investments — common in large charity portfolios — present additional challenges around transparency, labour practices, and tax structuring.
The Quakers in Britain became one of the first UK faith bodies to adopt a comprehensive ethical investment policy covering fossil fuels, the arms trade, gambling, and companies with poor labour rights records. As screening extends beyond traditional "sin stocks," the practical challenge for trustees is not whether to screen but how far screening should go before it becomes unmanageable or financially counterproductive.
The evidence
The 2022 Butler-Sloss ruling transformed the legal landscape. Mr Justice Michael Green ruled that trustees are not under an absolute duty to maximise financial returns, may balance financial considerations against conflicts with the charity's purposes, and may adopt ethical investment policies provided they act honestly, in good faith, and with due regard to evidence. The ruling explicitly departed from the 1992 Bishop of Oxford case.
The Charity Commission's CC14 guidance, updated following Butler-Sloss, confirms that a responsible investment approach is consistent with trustee duties.
On financial performance, a 2015 meta-analysis by Friede, Busch, and Bassen covering 2,200+ studies found that the majority showed a positive relationship between ESG criteria and corporate financial performance. CCLA's COIF Charities Ethical Investment Fund has delivered returns broadly comparable to non-screened benchmarks over 10- and 20-year periods. Against this, some portfolio managers argue that excluding entire sectors reduces diversification and increases concentration risk.
Current context
Butler-Sloss settled the legal question but not the practical one. Many boards remain cautious about restricting their investment managers. The CC14 update has helped, but the guidance remains principles-based rather than prescriptive.
The Church of England's General Synod voted in 2023 to begin divesting from fossil fuel companies that fail to meet Paris-aligned benchmarks by 2030 — conditional divestment that blurs the line between the two camps. Fossil Free UK reports over 100 UK charitable and faith institutions have now made divestment commitments.
The definition of "ethical" keeps expanding. In 2024, several UK charities reviewed their exposure to technology companies over AI safety and digital surveillance concerns. Rathbone Greenbank reports rising demand for bespoke exclusion policies beyond standard ESG screens.
Last updated: April 2026
What this means for charities
Every charity with an investment portfolio should have a written investment policy addressing ethical considerations. Since Butler-Sloss, the legal risk of adopting a considered ethical policy is low; the reputational risk of having no policy at all is high.
Boards should start by asking: are any of our investments in direct conflict with our charitable purposes? A cancer research charity holding tobacco stocks, or a peacebuilding charity invested in arms manufacturers, faces obvious contradictions. Beyond these clear cases, the answer requires judgement — and that judgement should be documented.
For charities using pooled funds managed by firms like CCLA, Rathbones, or Cazenove, the practical step is to review the fund's screening criteria and engagement record. For those with bespoke portfolios, the board should set explicit exclusion criteria and review them annually.
The divest-or-engage question does not have to be binary. Many charities now adopt a tiered approach: automatic exclusion for sectors that directly contradict their mission, active engagement where shareholder influence is realistic, and clear escalation criteria — including divestment — where engagement fails within a defined timeframe.
Common questions
What is CC14?
CC14 is the Charity Commission's guidance on charities and investment. It sets out the legal framework for investment decisions, including the duty to consider whether investments conflict with the charity's purposes. Following Butler-Sloss, it was updated to confirm that trustees may adopt ethical exclusions provided they exercise proper judgement and document their reasoning.
What was the Butler-Sloss case?
Butler-Sloss and others v Charity Commission (2022) was a landmark High Court case. Mr Justice Michael Green ruled that trustees are not under an absolute duty to maximise financial return and may take non-financial considerations into account where investments conflict with the charity's purposes. The ruling departed from the narrower 1992 Bishop of Oxford case and gave boards significantly more freedom to exclude investments on ethical grounds.
Does divestment actually affect companies?
Not directly through share price impact — when a charity sells shares, another buyer purchases them. However, research by Ansar, Caldecott, and Tilbury at Oxford's Smith School (2013) found that divestment's primary impact is stigmatisation, which can shift policy and regulatory outcomes over time.
How does the Church of England approach this?
Through a dual approach: the Church Commissioners and Pensions Board exclude companies deriving more than 10% of revenue from thermal coal or tar sands, while engaging actively with others. In 2023, the General Synod voted to begin phased divestment from fossil fuel companies failing to meet Paris-aligned benchmarks by 2030 — sitting between pure divestment and pure engagement.
What is the Wellcome Trust's position?
Wellcome, with an endowment of roughly £38 billion, announced in 2022 that it would cease all direct fossil fuel investments — reversing its previous position that divestment would compromise diversification. It now states that the energy transition has progressed far enough that excluding fossil fuels no longer represents a material portfolio risk.
Should small charities worry about this?
Yes, but practically the question is different. Most small charities invest through pooled funds. The key step is to check whether the fund applies ethical screening aligned with the charity's purposes. For charities holding assets in deposit accounts, the question is more about which financial institutions the charity banks with.
Key sources and further reading
Butler-Sloss and others v Charity Commission — [2022] EWHC 974 (Ch). The landmark ruling on charity trustees' freedom to adopt ethical investment policies.
CC14: Charities and Investment Matters — Charity Commission for England and Wales, updated 2023. The official regulatory guidance on charity investment.
Ethical Investment Advisory Group Reports — Church of England. Annual reports on ethical screening, engagement, and divestment thresholds.
CCLA Good Investment Review — CCLA, published annually. Responsible investment trends among UK charities, churches, and local authorities.
Stranded Assets and the Fossil Fuel Divestment Campaign — Ansar, Caldecott, and Tilbury, Smith School, University of Oxford, 2013. Research on divestment campaign mechanisms and impact.
ESG and Corporate Financial Performance — Friede, Busch, and Bassen, Journal of Sustainable Finance and Investment, 2015. Meta-analysis of 2,200+ studies on ESG and financial performance.
Charities Responsible Investment Guidance — Rathbone Greenbank Investments. Practical guidance for trustees on responsible investment.
COIF Charities Ethical Investment Fund — CCLA. Performance data and screening criteria for the UK's largest ethical charity investment fund.