Charities have been given the go-ahead to align their investments to counter the impact of climate change, even if it means losing out financially by excluding a large part of the market.

The ruling has been handed down by Mr Justice Michael Green, who backed the Paris Agreement aligned policies of two grant makers, the Ashden Trust and Mark Leonard Trust.

"The Claimants have decided, reasonably in my view, that there needs to be a dramatic shift in investment policies in order to have any appreciable effect on greenhouse gas emissions and for there to be any chance of ensuring that there is no more than a 1.5°C rise in pre-industrial temperature,” said the High Court judge.

He added that “there should be clarity as to the law on investment powers of charity trustees”, paving the way for the Charity Commission to revise its guidance on investment policy.

This is the first time that trustees have been allowed to adopt such investment policy and rewrites case law dating back 30 years.

This 1992 law had not considered climate change and instead said trustees needed to focus on maximise their return on investment and only consider ethical or moral considerations in rare situations, such as when an investment directly contradicts a charity’s purpose.

A statement from Ashden Trust and Mark Leonard Trust described the judgement as “momentous”.

"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,” said Ashden Trust founder Sarah Butler-Sloss.

“We can now exclude them from our portfolio. This judgement 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.”

Mark Leonard Trust, founder Mark Sainsbury added: “This judgment marks a milestone in defining the fiduciary duties of charity trustees. For too long, responsibilities in this area have been a source of uncertainty and differing advice and it’s been too easy for trustees to ignore the tension between their charitable purposes and certain investments.

“With this judgment there can now be no doubt that all charity trustees need to weigh up financial return against any potential conflicts with their aims and work. I'm delighted we can finally crack on and implement our investment policy and hope that it serves as a template for others."

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