CC14 – Updated guidance for trustees on investing charity money

On 1 August 2023, the Charity Commission released updated guidance (CC14) to provide clarity for charity trustees in relation to decision-making around investments. 

CC14 shortens and simplifies previous guidance with the aim that trustees can seek information and act quickly and with increased certainty about their legal position. 

This update follows a call for information from the Charity Commission after a High Court judgement (Butler-Sloss v the Charity Commission), which discussed trustees’ duties and responsibilities relating to their charity’s investments.

Helen Stephenson CBE, Chief Executive of the Charity Commission, said: “Our refreshed guidance will help trustees make well-informed, carefully considered decisions about how to invest on behalf of their charity in a modern context.” 

Early sector research has found that 70% of respondents believe the guidance is easy to read, and around 85% had confidence in their next steps. The ease of reading has been assisted by the removal of terminology that was previously causing confusion and by simplifying the layout and using clear and consistent language, which is to be welcomed.

It will also provide reassurance to trustees who act in accordance with the guidance in confirming that “the Commission is unlikely to have concerns about your investment decisions or policy if you can show you have:

• Complied with your trustee duties and your governing document
• Considered and balanced relevant factors
• Taken advice unless you have good reason not to
• Reached a reasonable decision

What does the guidance tell us?

Trustees generally have wide discretion to determine how best to invest a charity’s funds to support the delivery of its purpose.

Financial Investment

When trustees are making a financial investment with the aim of generating a financial return, they must have regard to their investment duties as well as their general legal duties. They must:

• Consider if an investment is suitable (both the type of investment and the specific investment)
• Diversify their investments where appropriate to spread risk
• Take advice (unless there is a good reason not to)
• Regularly review investments

Provided you act within your duties and consider good decision-making principles, then the guidance confirms that you have the flexibility to:

• Aim for the best financial return within the level of risk that you decide is acceptable
• Achieve a financial return but avoid investments that conflict with your charity’s purpose 
• Achieve a financial return but avoid investments that could reduce support for your charity or harm its reputation
• Avoid (or make) investments in companies because of ESG factors, or use your shareholder vote to influence a company’s practice, where either or both approaches are in your charity’s best interests (either because it will protect or enhance investment value over time or because it will directly support your charity’s purpose)

If an investment conflicts with your charity’s purpose or harms its reputation, this will be a relevant factor in your decision-making. The guidance clarifies that whilst you can still decide to keep the investment, you will need to document how you have considered the benefits and risks of doing so.

Social Investment

The guidance now incorporates commentary on social investment. Trustees can decide to invest to achieve some form of financial return and directly achieve your charity’s purpose, subject to any restrictions in their governing document or legal structure.  

The guidance sets out what trustees should document so that they can keep such investments under review and consider them in light of the charity’s overall financial position.

Trustees must consider if they should obtain and consider advice on the social investment and, if so, what kind of advice is required. They must also review their charity’s social investments and consider at regular intervals if further advice is required.

Setting your investment policy

The guidance highlights some practical issues for trustees to take into consideration when setting their investment policy, including what to factor into setting your investment objectives, the timeframe for investment, your need to access the money invested, your attitude to risk and what level you are willing to accept and why in the context of your charity, and who you obtain advice from in setting that policy.

Taking advice and delegating

The guidance reminds trustees that they are ultimately responsible for investing their charity’s money, even when they delegate some decision-making to others. It provides guidance on taking professional advice (including from a trustee), selecting an investment manager and delegating decision-making to them, as well as what to consider when reviewing an investment manager’s performance.

Reviewing and reporting on investments

Trustees are reminded of the need to regularly review investments and what to take into consideration when conducting a review, as well as the need to report on investments in the trustees’ annual report.

Investing Permanent Endowment

For those charities holding permanent endowments, the guidance contains a summary of the expectations for balancing the needs of current and future beneficiaries and how a total return approach to investment (which requires a formally documented resolution) can provide greater flexibility for how you spend or reinvest returns.

It also highlights that trustees can now use some or all of the total return fund to make social investments that are expected to provide a negative or uncertain financial return, provided such losses are offset over time by gains in the remainder of the investment portfolio.

Investing mainly in cash

The Charity Commission makes it clear that cash kept in savings or deposit accounts counts as an investment and that the same considerations apply as set out above.

Commentary

Overall, this guidance should be welcomed by trustees as it provides a clear summary of the expectations of the regulator on the approach it expects from charity trustees in overseeing their charity’s investments and making decisions about the right approach for their charity, whether that is through financial or social investment. 

For more information or to discuss how our charities team can help you, contact Samantha Pritchard on 0191 211 7905 or email [email protected]