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Mark Morford

Regulated Products Manager

Charities Aid Foundation

Charity Commission issues new investment guidance for Trustees (CC14)

 Key highlights:

•    Simplified structure / easier to interpret
•    Clearly articulated examples
•    Shows how to consider ‘ethical’ issues as part of your approach

The Charity Commission for England and Wales has issued updated guidance – note CC14 - for trustees seeking to invest their charity’s assets. The guidance has been made easier to read and interpret, and also accommodates the ‘Butler-Sloss’ judicial review.

In this review, the trustees of two charitable trusts sought the approval of the Court to the adoption of a policy that would enable their investments to be aligned with the goals of the Paris Agreement on climate change, as well as gain clarity over certain other issues.

The ruling confirmed that Trustees can invest in the best interests of their charity, including furthering its purpose. This starts with the view of aiming for the best financial return within the level of risk that you decide is acceptable for your charity. The phrasing here is more nuanced than the previous ‘maximise returns’ and it allows for greater flexibility of approach.

Where investments or classes of investments potentially conflict with the charitable purposes, investment policies can, and should, reflect this. Decisions should reasonably balance all relevant factors including the likelihood and seriousness of the potential conflict and financial effects from the exclusion of such investments, including the risk of losing support from donors and beneficiaries.

The new CC14 guidance for charities in England and Wales reflects this and usefully includes examples of acceptable practice:

•    a health charity may decide to avoid investment in companies that mainly produce alcohol, tobacco, or highly processed food; or an environmental charity deciding to avoid investment in fossil fuels.
•    avoiding investment in fossil fuels where the trustees can show that this would be in the charity’s best interests by avoiding damage to its reputation or fundraising.
•    avoiding or making investments in companies because of their practice on environmental, social and governance (ESG) factors such as: climate, human rights, sustainability, community impact and board accountability.
•    using shareholder votes to influence practice at companies that your charity is invested in.

It is stressed that these factors run alongside the financial return considerations and must not be influenced by trustee’s personal opinions.

CC14 also seeks to de-mystify the position regarding social investments by including commentary in the document and by simplifying the language used. The terms programme-related and mixed-motive investment are removed, leaving social investment as the only descriptor.

A social investment  is where charity trustees use money or property with a view to both achieving their charity’s purposes directly through the investment and making a financial return, e.g.

•    a poverty relief charity investing in affordable housing, affordable medicine, or in companies that pay workers a living wage, alongside the financial return that the trustees are aiming for from the investment.
•    a development charity making a loan to a small-scale farming business. This helps to achieve the charity’s purposes directly by bringing benefits to the local population, as well as by providing a financial return from interest on, and repayment of, the loan.

When deciding if a social investment is in your charity’s best interests, comply with the decision-making principles and think about how the social investment fits with the overall financial position, spending plans and plans for achieving its purposes.

The guidance retains plenty of commentary on the steps trustees ‘must’ take legally and those trustees ‘should’ take for best practice. It also includes sections on high-risk investments, including crypto, and when to consider taking advice. Many investment firms have said that the new guidance intensifies the requirement for trustees to take advice, but instead it is clear that advice should be taken unless you have a good reason not to, for example because of expertise in your trustee group or your organisation has limited or low value investments. The terms limited and low value are open to interpretation, but provided your conclusion not to seek advice is reasonable, recorded and reviewed then you can demonstrate adherence to the guidance provided.

Above all, the need to be prudent when considering investments remains a top priority. Remember to keep your investments and investment approach under regular review, consider diversification, have a robust investment policy and take advice unless there is a good reason for not doing so. If you consider matters prudently in line with CC14 and record your decisions and the reasons behind them, then the new guidance should enable you to invest with confidence.

1 Butler-Sloss and others v Charity Commission and another [2022] Ch 371
2 Source: The Charities Act 2011 (as amended)

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