Update (1 August 2023): Our refreshed investment guidance has been published. Read Investing charity money: guidance for trustees.
A key priority for the Commission is to support trustees in managing their charities well. One of the ways in which we do that is by producing guidance that is clear, accessible, and that helps trustees make confident decisions that are right for their charity, and in line with trustees’ duties.
It is with that aim in mind that we are asking a sample of charities to ‘road-test’ our new draft guidance on charities and investment.
The updated guidance
One of our ambitions in reframing our investment guidance was to make it shorter, and sharper. We have certainly succeeded in reducing its length – the new guidance runs to 5,600 words, more than four times shorter than our previous guidance. We hope that this alone makes the guidance easier to navigate– but we now need to test that assumption with trustees.
We also hope that our testing process will help us to hear views on our proposal to ‘retire’, so to stop using, certain terms that were included in previous versions of our guidance, but which are out of date or create confusion. These include the terms ‘ethical’ or ‘responsible’ investments – during a previous consultation charities gave us feedback that these terms were not as clear and inclusive as they could be. The new draft guidance instead emphasises that trustees must ensure that, ultimately, the investment approach operates for the benefit of their charity once they have considered all relevant matters. In the context of financial investments, this may lead them to choose to exclude certain investments due to non-financial considerations, or to solely focus on financial return that maximises investment income to spend on their charity’s purpose.
We also propose to move on from the terminology of ‘mixed-motive investment’, and ‘programme-related investment. These are all forms of social investment, as defined in new legislation in 2016, and our draft guidance describes it as such.
Who is taking part?
We have identified a representative sample of around 1,000 charities that have investment income, so whose trustees invest charitable funds or assets, and therefore need to use and understand our guidance. We have also shared the draft guidance with some charity lawyers and a limited number of other groups who represent the interests of charities with investments.
Why consult again?
This is not a consultation – we undertook a full public consultation on the key principles in 2021. This exercise aims at ensuring our guidance is structured and worded in a way that is helpful to trustees and their advisers.
The ‘Butler-Sloss judgment’
Last year, the courts published a judgment on trustee investment duties (the Butler-Sloss judgment), which offered welcome clarification of how existing legal principles should be interpreted by trustees in a modern context. It confirmed that trustees have wide discretion in making investment decisions, for example, in deciding to exclude certain investments based on non-financial considerations. It also confirms trustees can equally choose to focus just on financial return – ultimately what is appropriate for charities may differ. We have ensured that our updated guidance reflects that judgment.
The user testing will take place over the next few weeks. We will then consider the responses carefully, before publishing the final investment guidance in the summer.