The Charity Commission has finally published its new investment guidance, CC14, and it makes clear that programme-related investment and ‘mixed-motive investment’ are both perfectly legitimate models for charities to consider.
The new Charities and Investment Matters (CC14) confirms that trustees can invest ethically, sustainably, for a financial return or to achieve charitable aims or for a mix of all or any of these. But it emphasises that trustees must be clear about their motives and must be able to justify that they are using their charity’s resources in its best interests.
The guidance clearly explains the difference between programme-related investment (PRI) and grantmaking, which boils down to whether trustees expect to make a financial return. It describes various examples of PRI, including ‘outcomes-based finance’ such as social impact bonds.
It also acknowledges the growing area of ‘mixed-motive investing’ – investment in a project that goes some way to providing a financial return and some way to furthering the charity’s aims. The Commission recognises that this may sometimes be a suitable option for trustees to adopt.
Charity Commission chief executive Sam Younger (pictured) said: “Charities currently command a total of nearly £81bn in investment assets. This guidance reassures trustees that, so long as they can demonstrate that they have reached a reasonable decision having considered the relevant issues, they are unlikely to be criticised for adopting a particular investment policy.”
The Charity Investors’ Group urges all trustee boards to review their charity’s overall investment policy statement in light of the new guidance.
Long wait for new guidance
The new CC14 has been a long time coming. The Commission started reviewing the 2003 guidance in September 2009 and had hoped to publish a new draft by the end of that year. But it was not published until December last year and the volume of responses from the sector meant that the regulator took much longer than expected to produce the final version.
However, the final product seems to have found favour with sector leaders. Kate Rogers, chair of the Charity Investors’ Group, and Stephen Hammersley, CEO of the Community Foundation Network, have both reviewed the guidance for Charity Finance and broadly welcomed its approach.
Kate Rogers, who is also a client director at Schroders, said: “The first main change from the consultation draft is the structure and emphasis of the guidance. The document is longer, illustrating the increased level of detail on a wider range of areas covered, and is more user-friendly.”
She said it was much less prescriptive on asset-class selection, and recognises that commodities are an allowable investment rather than a trading asset.
And the inclusion of programme-related investment “reflects the wider range of approaches now available to trustees in using their assets, and attempts to bridge the gap between the finance committee and grantmaking committee”.
Rogers added: “Whereas previous guidance sought to highlight the risks inherent in alternative investment classes such as hedge funds, private equity, commodities and derivatives, the new guidance is more balanced, recognising that these can play a part in an overall charity investment strategy, where appropriate.
"I would hope trustees feel empowered, rather than daunted, by the increased flexibility that this guidance allows.” Subscribers to Charity Finance and civilsociety.co.uk can read Kate Rogers’ full response here.
Stimulus to social investment
Stephen Hammersley said the new guidance would help to stimulate social investment: “I welcome the fact that the Commission’s new guidance can’t, in my view, be read as suggesting a preference for traditional financial investment – targeting the best rate of financial return – over programme or mission-related investment. It is up to trustees to decide.”
He said his only real criticism of the document is the use of the phrase ‘mixed-motive investment’ to describe investments that blend financial and programme-related justifications and returns.
“This descriptor contradicts the powerful driving force that I found permeated the rest of the guidance. Namely, that there is a single motive that should drive all investment decisions – to further the aims of the charity.” Subscribers to Charity Finance and civilsociety.co.uk can read Hammersley’s full response here.
Jane Hobson, the Commission’s head of policy, said: “The updated guidance makes very clear that charities can, and may, make investments aimed at achieving their aims directly.
“This type of investment will not be appropriate for all charities – but it is certainly legitimate and can serve to help increase the funds available to the sector more widely." Subscribers to Charity Finance and civilsociety.co.uk can read Hobson’s analysis of the guidance here.
