Investing charity money: guidance for trustees (CC14)

CFG’s Richard Sagar on updated investment guidance for charities

Much of the sector has been waiting with bated breath for the Charity Commission’s guidance on Investing charity money: guidance for trustees. After significant consultation with the sector and relevant parties the Commission has now published the updated CC14.

At CFG we consider the guidance to be a notable improvement on the previous iteration, and it is clear the Commission has listened to concerns which CFG and other stakeholders raised.

Key elements to be aware of about the updated guidance:

More faithfully incorporating the principles of Butler-Sloss.

Previous editions of the guidance had been criticised for focussing too much on financial return at expense of other factors when setting a charity investment policy. The updated guidance gives further clarity that trustees have discretion in choosing investments that align with their values, provided they also show how the investment will further their charitable purposes. Wider environmental, social and governance (ESG) factors, conflicts of interest, and the reputational risk to the charity should be considered, as long as these further an organisation’s charitable purposes.

Removing potentially confusing terminology

The terms ‘mixed motive investment’ and ‘programme related investment,’ which involved both financial and social returns, have been removed from the guidance. This is to be welcomed. Based on the consultation we had with our members, many found these terms potentially confusing and ambiguous. Instead, the Commission distinguishes between ‘financial investment’ and ‘social investment.’ Social investment is defined as achieving a charity’s purposes directly through the investment, while also making a financial return. The examples given in this part of the guidance will also help charities determine what this kind of investment consists of.

The guidance also helpfully removes the term ‘ethical investment,’ which previously focused quite narrowly on excluding certain kinds of investments, to a more complete consideration emphasising that trustees must act in the best interest of their charity when making investment decisions, with social investments furthering charitable purposes. Of course, what this looks like for any specific charity will depend on the mission, beneficiaries, and circumstances of that charity, with different charities legitimately pursuing very different investment approaches.

Charity Investment Principles

The work to support charity leaders with planning, managing, and reviewing investments does not end at CC14. CFG, alongside other charity infrastructure bodies and investment experts, is in the initial stages of producing a set of investment decision-making principles to complement the Charity Commission’s new guidance. It is understandable that CC14 has a regulatory focus, but we think creating a set of sector-led principles will help charity leaders and trustees to understand what best practice looks like in charity investment.

The principles will focus on investment decision-making and follow on from the work CFG and others have done in the past year, since the Butler-Sloss court ruling. As a sector, we can now build on the Butler-Sloss principles and CC14 and formalise best practice to support charities. The Charity Investment Principles will be independent of and complementary to the Charity Commission’s revised guidance and we hope they will be welcomed by charities, investors, and the Commission.

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