Updated Charity Investment Guidance for trustees

After several years of consultation, a court case and various delays, the Charity Commission for England and Wales have today published updated investment guidance: Investing charity money: a guide for trustees.

We have actively represented our clients over this time, hosting round tables with the Charity Commission, contributing to the consultation and reviewing the draft guidance ahead of publication. 

More accessible and practical guidance

The new guidance is more accessible for trustees, and clearly sets out trustee duties when investing charity assets (see checklist below). The Commission say the guidance aims to offer “greater clarity and to give trustees confidence to make investment decisions that are right for their charity”. It emphasises “that trustees have discretion to choose what is best in their circumstances and have a range of investment options open to them – provided they ultimately further the charity’s purposes.”

Removing the reference to "ethical investment"

The Commission has removed reference to “ethical” investment, as well as “mixed-motive” and “programme-related” investment. It has opted instead for “financial investment” and “social investment” – where the former seeks financial returns and can take into account non-financial factors such as sustainability and impact characteristics. The latter specifically relates to achieving the charity’s purpose directly through the investment (while making a financial return). 

Permissive approach to responsible investment

The guidance is permissive towards the inclusion of “non-financial factors” being included in financial investments, explaining that it is up to trustees to determine what is in the best interests of their charity.  It highlights that this might include investment approaches that avoid certain assets, seek out specific investments for their environmental or social performance and use influence to create change. The recent Butler-Sloss case is now the “leading case in relation to the law on investment decision-making by trustees”. It has been helpful to clarify that investments conflicting with the charity’s purpose or harm its reputation can be excluded, even if it there are anticipated financial implications, as long as the decision is in the best interests of the charity.  

Despite this permissive framing, we have consistently fed back that we believe responsible and sustainable investment is under represented in the guidance, given public benefit requirements, the fact that 83% of long term charity investors already have responsible investment policies¹ and the action that many charities are taking to respond to broader social and environmental shifts like climate change.  We will continue to work with our clients in the sector to drive best practice.

Investment policy guidelines

A more significant section of the guidance is dedicated to helping trustees set investment policy, thinking about returns, risk, time horizon and liquidity.  It is clear that “the Commission expects all charities that invest to have a written policy” (see checklist below).  We welcome this, although we also recommend that a charity investment policy contains a statement on responsible investment approach, and how the investment policy aligns with the charity’s values and aims.

An expectation that all investing charities take professional advice

A new section of the guidance concentrates on taking advice and makes it clear that the Commission expects all investing charities to take professional advice when making and reviewing investments.  This advice could be given by an investment adviser or manager (like us), or by a trustee with relevant experience. It is worth noting that if a trustee is relied on for advice they are held responsible for the quality of that advice. Not all investment managers give regulated investment advice (we do), so it is important for trustees to consider how they are meeting this expectation. 

Working with investment managers

The guidance sets out how charities might delegate to an investment manager, the types of things that trustees should consider when selecting a manager (see checklist below), the need to have a contract and the requirement to ‘regularly review’ the service that you are getting. The guidance is clear that this regular review can be done by trustees, and should consider performance, alignment with investment policy and ongoing suitability. 

Empowering trustees

Trustees should feel empowered by this new investment guidance. It is written to be permissive and flexible for individual charity circumstances. It even says “the Commission is unlikely to have concerns about your investment decisions or policy if you can show that you have: complied with your trustee duties and your governing document; considered and balanced relevant factors, taken advice and reached a reasonable decision.”

We welcome the new guidance, are confident that we meet the recommendations and look forward to continuing to work with our clients to develop and evolve charity investment best practice. 

¹ Source: Cazenove Capital: Charity Investment Survey 2023. 

Charity investment checklists

Trustee duties

• Considering whether the investments are suitable for your charity and whether they will meet its investment objectives. This means taking account of how suitable any investment is for your charity: both the investment type (for example, shares) and particular investments within that type (for example, shares in a specific business)
• Considering the need to diversify investments, if appropriate to your charity, to spread the risk (for example, owning shares in a number of different companies or sectors)
• Taking advice from someone experienced in investment matters, unless you have a good reason for not doing this. For example, if you have enough expertise in your trustee group or you have limited or low value investments
• Reviewing your charity’s investments at appropriate intervals
  

Charity investment policy checklist

• What, if anything, your charity’s governing document says about how you must invest

• Your charity’s investment objectives, including any relevant reputational and other non-financial factors
• Any sectors or organisations which you consider are in conflict with your charity’s purposes
• Your timeframe for investment - short, medium or long-term
• How easily or often you need access to your charity’s money
• Your charity’s attitude to risk
• Your approach, if any, to ESG factors and to your engagement with the companies you invest in
• How you monitor and review your investments, including key benchmarks
• Who your investment advisers and managers are, their responsibility and remit, and how you work with them

Manager selection checklist

• How they will deliver on your investment policy, including any reputational and other non-financial objectives
• The type and number of portfolios they manage
• The value of the assets they manage
• Their experience of managing charity investments
• Their fees and charges in the short and long-term
• Their investment selection and risk-review process
• Their ability to adapt their approach to suit your charity

Annual report checklist

• How your charity’s investments have performed during the year
• What your investment policy is, including any non-financial aims that you have for your charity’s investments

This article should not be deemed to constitute the provision of financial, investment or other professional advice in any way. Information herein is believed to be reliable but Schroders does not warrant its completeness or accuracy.