The Charity Law Association has recommended trustees are given the legal freedom to invest on a total return basis without seeking prior Charity Commission approval, in its submission to the Charities Act Review.
In an 83-page 'first draft' submission to Lord Hodgson, who is carrying out the review, the CLA outlined measures it believes would help promote social investment, which also include enshrining parts of the Charity Commission's CC14 guidance in law.
The legal umbrella body which utilised a working party of 19 legal experts and a wider advisory group to construct its submission, said in the context of reduced funding for the Charity Commission a number of "refinements" to the Commission's powers were needed and outlined the total return freedom as a "deregulatory measure".
The move would allow all charities to build an investment portfolio which takes into account both the capital appreciation and the income received on the portfolio.
"Acompanying that power should be a power to permit mixed-motive investment generally," the organisation advised, alluding to the need to set the Mixed Purpose Investment section of the CC14 guidance outlined by the Charity Commission in law. The guidance, introduced in November last year, allowed charities to make investments based on a combination of furthering their charitable objects and securing a financial return, where before they were only permitted to invest based on one or the other.
The CLA acknowledged in its submission that allowing mixed-motive investments without prior authorisation by the Commission held "potential risks" and suggested incorporating the requirement for trustees to "be clear at the outset as to their purpose in making the investment". In its submission to Hodgson, Navca also outlined its perceived risks from mixed-motive investments, stating that they may shift the focus from charitable purpose to return on investment.
Charity law is a 'poor relation'
The CLA also used its submission to highlight the perception, as its members see it, that "charity law has long been a poor relation when it comes to legislative reform".
Commenting on the fact that some provisions in the Charities Act 2006 have still not been implemented, the organisation said: "Charity law has tended to be dealt with piecemeal when it comes to implementation; or is simply left to gather dust on the legislative shelf. This is not a happy state."
It declared its hope that Lord Hodgson's review will "mark the beginning of what will become a comprehensive review of the state of charity law, with a view to achieving sensible, measured and genuine reform".
It also called for a more integrated approach, seeing charity bills passed alongside those originating from other sectors where they may also affect charities, such as was the case with the Companies Bill and the Charities Bill in 2006.
Lord Hodgson's review of the Charities Act 2006 is expected to be brought before Parliament ahead of the summer recess this year.