The five ‘P’s of good charity investment governance

If your charity has investments or is thinking about investing to make better use of your reserves,  there are a number of things to consider to ensure that they’re performing in line with your objectives and your charity’s purpose.

Here are five ways to help maintain good governance when it comes to managing your charity’s investments.

1. Policy: review your investment policy statement 

In our experience, charities with an investment portfolio tend to fall into three broad groups when it comes to their investment policy statement (IPS). Either a charity does not yet have an IPS and is looking to create its first. Or a charity has an IPS which was written a few years ago and it now needs to be refreshed. Or a charity has invested significant time recently updating its IPS and any updates are minor refinements only. Whatever stage you’re at, make sure to keep it up-to-date regularly.

2. Purpose: how to reflect your mission and strategy in your investments 

The High Court case brought by two of the Sainsbury Family Charitable Trusts is a helpful reminder that charity trustees’ primary and overarching duty is to further the purposes of the charity, and the power to invest must therefore be exercised to further the charitable purposes. Trustees have discretion in deciding exactly how to go about this. 

A key element is to carry out a balancing exercise to consider the likelihood and seriousness of whether an investment conflicts with your purposes and the potential financial impact of excluding such investments. For charities throughout the UK, it may be worth considering the use of an appendix to your IPS, to document the balancing exercise carried out by the trustees, capturing the rationale for any screens selected. Whether you stay fully invested and favour engagement, or apply screens to align your investments with your purposes, both approaches are on the menu. 

3. People: trustees need to make collective decisions 

Investment decision-making is not just a matter for a sub-committee. While a smaller group of trustees might consider the detail, it is worth remembering that all trustees share responsibility for making decisions collectively. As such, the IPS should be seen and approved by all trustees, albeit a sub-committee monitors investment matters more regularly.

4. Participation: your investments could be a positive engagement opportunity

An IPS is increasingly a document formed as a consequence of input from more than just the board of trustees. Education institutions in particular more actively seek student, pupil, or staff input when considering what ‘responsible investment’ is to mean in the context of a particular school or university. This positive engagement could bring a number of benefits, providing not just reassurance to a wider group of stakeholders about how the investments are being looked after, but enabling knowledge and training to be shared on various investment-related themes, which is particularly appropriate in an education setting.

5. Process: plan ahead for a smooth investment manager review process 

Finally, when it comes to the practicalities of how to organise and run an investment manager review process, there is a lot to think about and plan for. A common difficulty can be identifying appropriate questions to ask, or setting a workable timetable. Read my practical tips on how to make a success of running an investment manager review process.

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