The Charities (Protection and Social Investment) Act 2016 allows charities to make social investments. Charities can invest funds to achieve their charitable objectives directly or invest to generate income or capital growth to then spend on their charitable objectives. The draft guidance suggests that charitable trustees need to be clear which option is being utilised.
Trustees can adopt an income-generating or capital growth strategy. Many forms of investment are available, such as buying shares, renting out property or interest on cash deposits.
The responsibility for planning, managing and reviewing the charity’s investment strategy lies with the trustees. Important factors for them to consider will be the investment objectives, timescale, risk tolerance and whether the investments should directly reflect the charity’s purposes. We suggest that charities maintain proper records of any correspondence and meetings which discuss their investments, including direct reference to the trustees’ investment powers and decisions made pursuant to them in the charity’s board minutes. It may also be worth considering whether to mention the charity’s responsible investment policy in its annual report.
The draft guidance acts as the logical next step in response to the changes brought about by the 2016 Act. The Commission’s current guidance refers to “ethical” investments, meaning that the trustees should invest in a way that reflects the charity’s values and does not conflict with its aims. The draft guidance replaces this with “responsible” investments, allowing a broader and more practical approach to investment in line with a charity’s objectives and values. For example, the new guidance suggests that trustees may choose to avoid investments in a particular sector if they have evidence suggesting that doing so would damage the charity’s reputation and reduce income from donations.
The updated draft guidance represents an encouraging and more pragmatic approach to charitable investment. It emphasises that trustees are not bound to invest in a way that maximises returns and can give more weight to matters such as the public perception of their investments.
If you would like to speak to a member of our team about trustees’ duties in relation to investments, please contact us to arrange a call.