Charity Commission publishes long-awaited revised investment guidance (CC14) on charities and investment matters
October 2011
Charity and Investment Matters, a Guide for Trustees (CC14) which replaces the Commission’s previous advice on investments outlined in CC14, describes the legal duties and principles that apply to charity investments and the risks that trustees must address.
The new online guidance offers a clear framework for decision making, but emphasises that it is up to trustees to decide on the most appropriate overall investment strategy for their charity.[i]
As at June 2011, according to Commission records, charities reported total investments of £81bn. At that time, the most recent data suggested gains on charities’ investments of £6.5bn. This was up from the most recent data as of June 2010, which saw a net investment loss of £5.8bn.
The guidance reflects the Commission’s new regulatory approach and wider changes in policy and practice within the charity sector. In recent years, increasing numbers of charities have been considering investing funds in ways that serve to directly further their charitable aims. In the past, charities usually invested solely for a financial return.
The updated guidance confirms that trustees can invest ethically, sustainably, for a financial return or to achieve charitable aims or for a mix of all or any of these. But it emphasises that trustees must be clear about their motive in making an investment and must be able to justify that they are using their charity’s resources in its best interests.
Charities and Investment Matters comes as part of a wider review of the Commission’s financial guidance to charities, which began in 2008 in response to the economic downturn. Like all the Commission’s financial guidance, it encourages trustees to take a risk-management approach to decision making.
Charity Commission chief executive Sam Younger said: “Charities currently command a total of nearly £81 billion in investment assets. In challenging economic environments it is especially important that trustees are enabled to make those assets work harder for their beneficiaries. This guidance is designed and drafted to encourage charities to make confident decisions about investment that serve their charities’ interests – it reassures trustees that, so long as they can demonstrate that they have reached a reasonable decision having considered the relevant issues, they are unlikely to be criticised for adopting a particular investment policy.”
As Charities and Investment Matters explains, there are three investment approaches that charities can use. Financial investment aims at achieving the best financial return within the level of risk considered acceptable. When trustees make financial investments, they have to make sure they are aware of and acting within their charity’s powers to invest and must exercise care and skill.
Programme-related investment, or PRI, on the other hand, is aimed at helping the charity further its objects directly in a way that might also yield a financial return. When deciding whether to make a programme-related investment, trustees must be confident that doing so wholly furthers the charity’s aims for the public benefit.
The guidance also covers mixed motive investment. This is an emerging area which enables charities to make investments that cannot be wholly justified either as financial or programme-related investments, but which the trustees still consider likely to be in the best interests of the charity. Trustees making this type of investment should be satisfied that it can be justified by the combination of the anticipated return and the contribution to the charity’s aims.
The publication on 27 October 2011, follows extensive consultation with charity trustees and their advisers and input from experts in the financial, legal and governance sectors.[ii]
[ii] See also http://www.charitiesdirect.com/caritas-magazine/mixed-purpose-investments-but-is-it-all-still-a-bit-of-a-muddle-your-chance-to-comment-on-the-new-cc14-870.html for a summary of the key issues raised by the sector during the consultation process
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