The Charity Commission has produced interim guidance on managing risks in social investment and operating within the law, as the Charities Act's new power came into force yesterday.
The interim guidance, which is to be reviewed in 2017, has been produced to assist charities in how to make decisions about investing charity funds. It sets out the “legal and good practice framework for the investment of charity funds”.
The new social investment power was introduced yesterday, July 31st 2016, as the first phase of the Charities (Protections and Social Investment) Act 2016 came into force.
The new Act is the first time social investment has been defined in legislation. It is defined as a “relevant act” that is carried out “with a view to both directly furthering the charity’s purposes and achieving a financial return for the charity”. The guidance explores this definition to provide further advice on what is and is not a social investment.
The guidance covers the key steps to making financial investments, programme related investment - using assets to directly further the charity’s aims while potentially also generating a financial return, and mixed motive investments - investing to both further a charity’s aims and generate a financial return.
Sarah Atkinson (pictured), director of policy and communications at the Charity Commission, said: “The stated purpose of this power is to give confidence to charities to undertake social investments. The legislation does place further duties on trustees who are considering social investments but these are not intended to be onerous. This updated guidance should help trustees to make well-considered, prudent decisions in this developing area.
“We look forward to working with charities and sector bodies as they develop their approach to social investment. The Commission will consider their early experiences of it as part of a future review of its investment guidance in 2017.”
When introducing the new power in the House of Lords, Lord Bridges of Headley said the intention of the power was to “help charities to make social investments so that they can fulfil their mission in new and innovative ways” and that it would “give charities the confidence and certainty to invest in this growing sector”.
The new legislation does not alter or override trustees’ general common law duties, and the guidance states that these duties apply to any decision regarding social investments.
It places specific duties on trustees who are considering making social investments, such as ensuring they “consider whether advice ought to be obtained”, “obtain and consider any such advice”, and that they “satisfy themselves that it is in the interests of the charity to make the social investment”.
It also states that trustees must ensure they review their investments from time to time.