New Charity Commission Guidance on Investing Charity Money
The new guidance will be of interest to all charity trustees - and particularly pertinent when making decisions on excluding investments that fuel climate change.
On 1 August 2023, the Charity Commission published re-written CC14 guidance - 'Investing charity money: a guide for trustees' - designed to be shorter, clearer and easier to use than before.
The Charity Commission's revamp of the CC14 charity investment guidance follows a consultation carried out by the Charity Commission in 2021 and further updates following the decision in Butler-Sloss and others v Charity Commission and another [2022] EWHC 974 (CH) on trustee investment principles.
The previous guidance was considered difficult to engage with by trustees and advisers alike. And so we welcome the update and the Commission's statement emphasising that the new guidance is designed to be clearer, shorter and easier to use than before.
It seems to us that the content and language of the new guidance overall is in many ways clearer and easier to use than before; more accurately and plainly setting out various duties, suggested approaches and processes. Trustees may find the suggested approaches and factors for consideration in decision-making to be particularly useful.
Of course, some changes may not be helpful for all. For instance, the guidance no longer uses terms such as “programme-related investment” or “mixed-motive investment” on the basis that they are covered by the charity law definition of social investment. Whilst the reasoning might ultimately make sense, charities may still find the distinction helpful and the distinction persists (for now) in the Charities SORP.
The guidance covers different approaches to investment, all of which may be relevant to charities:
- investment designed to maximise financial returns
- 'ethical investment' (although that term is not used in the guidance), in which trustees decide to avoid investments that conflict with the charity's purposes, might harm the charity's reputation and support base, or investments associated with poor ESG practices
- social investment - where investments are fully or partly designed to promote the charity's objects.
Other areas covered by the guidance include charity investment policies, taking advice and delegating, and investing permanent endowment.
We can assist charities on taking steps following the publication of the revised guidance. This could include a briefing to trustees, and, if appropriate:
- a review of the charity's investment policy including, where appropriate, advice from the charity's investment managers and other relevant professionals
- facilitating, and properly documenting, a discussion by the trustees of the updated guidance and its implications along with that of the legal cases underpinning it, in particular the Butler Sloss This should include consideration of any areas where current or anticipated investments could conflict with the charity's objects and, where the trustees conclude there is such a conflict, the resulting balancing exercise.
The new guidance will hopefully be a useful resource for charity trustees and advisers alike, providing a helpful steer on the Charity Commission's reading of the relevant law and its preferred practical approaches on various charity investment subjects.
As part of that, a significant level of charity trustee discussion of investment currently focusses on the response to climate change; excluding investments that fuel it and choosing investments that are 'greener' and more environmentally, socially and economically sustainable.
For charity boards around the country, such a discussion on the approach to be taken on investments may extend to other steps that can be taken in response to climate change. Some charity trustees may decide that the hazards associated with climate change present sufficiently serious risks in terms of their objects so as to justify a full consideration of the climate related wider consequences of their investment, administrative and operational choices.