The Law Commission has recommended new rules to give charities a statutory power to make social investments in a paper published today.
A report, entitled Social Investment by Charities: The Law Commission’s Recommendations, says that generally charities already have the power to make social investments, but there is a lack of clarity among many trustees about exactly what they are allowed to do.
The report follows a consultation earlier this year which was broadly welcomed by the sector.
The Commission, an independent, non-political body which exists to review the law, said it was clear that trustees could use permanent endowments to make investments, and that it planned to examine further charities’ freedom to change the way they invested permanent endowments.
It also recommended introducing statutory duties specific to social investment which would replace the statutory duties of a trustee under the Trustee Act 2000 when a trustee was making such an investment.
It said it believed its recommendations would improve certain aspects of the Charity Commission’s guidance on social investment in Charities and Investment Matters: A guide for trustees (CC14) and would also clarify relevant tax guidance issued by HM Revenue and Customs.
Professor Elizabeth Cooke, the Law Commissioner leading the project, said: “Charities have a special place in society. The contribution they make is made possible, in part, by how they spend their money.
“Social investment represents a significant opportunity for charities, but the existing law is unclear. Our recommended reforms will clarify the law for trustees as to their powers and duties. They will make social investment more straightforward in law and give trustees the confidence to make the best of the opportunities it offers.”
However NCVO warned that charities should not feel pressured to make or take social investments as a result of changes in the law to make it eaiser to do so.
Andrew O’Brien, senior policy officer at NCVO, said: “The Law Commission’s report on social investment provides welcome clarity for trustees on their power to make social investments and their responsibilities. Social investment should be available for charities to use to achieve their objectives.
“However charities, particularly charitable foundations, should not feel pressured to make social investments as a result of the Law Commission’s proposed new power. Social investment is only likely to be a viable option for a small number of charities.
“The choice to make social investments should be freely made by trustees, based on an objective assessment of how they can best achieve their charitable objectives, and compared with other options for investment or for furthering their mission.”
The report will be passed to the Cabinet Office, which will make a decision about whether to go forward with the recommendations. Introducing a new statutory power would require the department to introduce new primary legislation.
