The Charity Commission has issued revised guidance on investments, bringing it up to date for the modern era and ensuring that it reflects legal developments such as the recent High Court judgement in the Butler-Sloss case. This guidance is set out in CC14 “Investing charity money: guidance for trustees” ( 1 August 2023).
The key theme of the guidance is the need for trustees to adopt a responsible investment strategy, acknowledging that trustees have discretion to choose what is best in their own circumstances.
Maximising investment return remains something for trustees to aim for, but not at the expense of compromising the charity’s purposes, as ultimately the need to further those purposes should underpin all the charity’s decision making. To assist trustees, the guidance provides examples of issues for them to consider when setting an investment policy, such as the potential for an investment to conflict with the purposes of the charity, or the reputational risk of an investment decision. In doing so it warns trustees against allowing personal motives, opinions or interests to affect the decisions they make.
The guidance also makes clear what actions trustees must take to be compliant with the law, including when independent advice should be taken.
Butler-Sloss case
The case was brought by the trustees of the Ashden Trust (now known as the Aurora Trust) and the Mark Leonard Trust. It sought to clarify trustees’ ability to invest in a climate-conscious fashion, even if it might be detrimental to financial returns.
The Butler-Sloss judgment takes a broader approach than before. Where trustees are of the reasonable view that a particular investment potentially conflicts with a charity’s purpose, the trustees have discretion to exclude such investment. This is even where this would cause a reduction in the anticipated financial return. It is up to trustees to balance the competing factors, such as the severity of any potential conflicts (including any potential impact on the charity’s reputation) and any financial implications (such as in relation to the support that it receives).
The revised Charity Commission guidance on investments follows this more permissive approach. It helpfully now includes specific reference to incorporating environmental, social and governance (ESG) factors into investment decisions as well as using active stewardship and engagement as examples of approaches which trustees might consider.
The updated guidance also includes advice on the use of social investments that are used to achieve the charity’s purposes directly through the investment, as well as making a financial return, and the different considerations that would apply. It describes a method of investment which seeks to achieve a charity’s purpose directly through an investment to create impact whilst at the same time making a financial return.
The guidance helpfully gives examples of “impact investing”. For example, a development charity making loans to small-scale farming businesses. The guidance distinguishes between financial investment (including negative screening, ESG etc) and social investment, principally because these two types are defined and regulated by separate Acts of Parliament. The list of examples of financial investment in the guidance is described as non-exclusive, potentially leaving the door open for other forms of investment under that category.
Anthony Epton heads up the award-winning charities group at Goldwins, Chartered Accountants, which specialises in providing cost-effective expertise to small and medium-sized charities. Anthony is the author of the Institute of Chartered Accountants of England and Wales’ leading books on charity tax, accounting and auditing. He can be contacted on 020 7372 6494 or aepton@goldwins.co.uk