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, according to NCVO's analysis of Charity Commission register data. 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. The Wellcome Trust also ended its direct fossil fuel holdings in 2022, though as part of a wider portfolio shift rather than a stated climate commitment. |
| 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 exit from its remaining direct fossil fuel holdings — part of a wider portfolio shift rather than an explicit climate commitment — was widely seen as a landmark moment regardless.
The moral argument is that engagement has had decades to work and has not delivered at the pace required. The five largest oil and gas majors spend an estimated $200 million a year on climate lobbying between them (InfluenceMap, 2019). 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 £11.6 billion, argue that remaining invested gives them a seat at the table that divestment would forfeit.
CCLA, one of the UK's largest charity fund managers with over £15 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 built on the 1992 Bishop of Oxford case, clarifying that its principles gave trustees discretion rather than an absolute duty to divest.
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 2018 to divest from fossil fuel companies that failed to align with the Paris Agreement by 2023. When that deadline arrived and no major oil and gas company had met the bar, the Church Commissioners and the Pensions Board excluded the remaining oil and gas majors from their portfolios — a deadline-driven 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 says it has seen rising demand from charity clients for bespoke exclusion policies beyond standard ESG screens.
Last updated: July 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 built on the narrower 1992 Bishop of Oxford case, clarifying its principles rather than overturning them, 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. Following a 2018 General Synod vote, they set a 2023 deadline for oil and gas majors to align with the Paris Agreement; when none did, the Church Commissioners and Pensions Board excluded the remaining majors from their portfolios in 2023 — a deadline-driven approach sitting between pure divestment and pure engagement.
What is the Wellcome Trust's position?
Wellcome, whose investment portfolio was valued at over £38 billion at the time, sold its remaining direct holdings in BP and Shell in 2022 as part of a wider shift to concentrate its public equities in non-cyclical industries. Wellcome has said the sales were a portfolio management decision rather than a judgement on the companies' approach to the energy transition, and its stated policy remains a preference for shareholder engagement over divestment, using exclusion only where engagement has failed. Separately, the trust has committed to bringing its investment portfolio to net zero by 2050.
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.