CC14 – 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 recently published updated investment guidance: Investing charity money: a guide for trustees.

Investment managers Cazenove, who hosted round tables with the Charity Commission and reviewed draft guidance during the consultation period, have highlighted below seven of the key changes featured in the revised guidance.

1. More accessible and practical guidance
   
   The new guidance is more accessible for trustees, and clearly sets out trustee duties when investing charity assets. 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.”
   
   
2. 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).
   
   
3. 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, Cazenove fed back throughout the consultation their belief that 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 policies, and the action that many charities are taking to respond to broader social and environmental shifts like climate change.
   
   
4. 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”. This is a welcome change to the guidance, and Cazenove 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.
   
   
5. 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 Cazenove), 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 (Cazenove do), so it is important for trustees to consider how they are meeting this expectation.
   
   
6. 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, 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.
   
   
7. 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.”

Cazenove have produced a series of trustee training sessions on the new guidance – click here to view the recordings. They have also produced a series of checklists for Trustees to consider with regards to Trustee duties, developing an investment policy, selecting an investment manager, and preparing an annual report.

In light of the changes to the Charity Commission guidance, HMRC have updated the terminology they use in their ‘Charities: detailed guidance notes on how the tax system operates’ documents to ensure consistency.