A proposal for a general power to make it easier for charities to participate in social investment has received broad support from sector representatives.
The Law Commission, an independent statutory body which reviews the law and recommends reform where it is needed, is consulting on proposals to introduce “a new statutory power to make social investments”. The consultation closes today.
“Some charity trustees are not confident about making social investments because they are unsure whether their powers under the charity’s governing document or under the general law authorise such investments,” the Commission said in its consultation paper.
“In addition, some charity trustees considering whether to make social investments may feel that they risk breaching their duties.”
It proposed a voluntary checklist that charities should be able to tick off before they make social investments. And it suggested there should be restrictions on how the power could be used by permanently endowed charities. It said the new rules it proposed would not replace any existing powers.
A joint response to the paper from the Charity Finance Group and NCVO said they broadly welcomed the proposals to bring greater clarity to the law, but that they were concerned that charities should not feel pushed into making social investment.
Caron Bradshaw, chief executive of the CFG (pictured), said social investment was not a “magic bullet” to solve charity funding challenges.
“Greater clarity will support charities in making decisions around social investment,” she said.
“However it is important to stress that charities should not feel pressured to make social investments as result of this proposed power. Investment should only be made after careful consideration of the risks of the investment and evaluation of the mission benefit that will be accrued.”
The Directory of Social Change also agreed with the power but said there needed to be greater safeguards to protecting charities which used it.
The DSC also said that legal barriers to social investment were not one of the main problems the market faced, and that the lack of relevant investment products and a cultural resistance to the idea of investment were more important.
Proposals for a general power were first submitted in a report, ‘Ten Reforms to Grow the Social Investment Market’ authored by Stephen Lloyd and Luke Fletcher of Bates Wells Braithwaite, the specialist charity law firm.
A BWB response also welcomed the proposed power, but called for the checklist accompanying it to have greater statutory force.
BWB and DSC disagreed over protections for permanent endowments. At present income from endowments can be spent on social investment but capital cannot. BWB said charities should have more power to invest endowments socially, while DSC said endowments should receive more protection than the Commission proposes.
