Charity Commission update - investment guidance for trustees

What are the key changes charity trustees need to be aware of?

The new version of the investment guidance could be described as a useful update to the language of the guidance and clarity around certain topics. It’s not a large sweeping change to how the Charity Commission expects trustees to approach investment of charity assets. However, there are three key changes that we would highlight for trustees to be aware of.

1. Length and accessibility

CC14 has been significantly shortened from over 20,000 words to around 7,000. Much of the more technical language has also been changed to reflect usage in the investment industry and reduce ambiguity around different forms of investing. References to ‘mixed-motive investment’ and ‘programme-related investment’ have been replaced by simple references to financial investments and social investments, the latter being those aimed at both directly achieving the charity’s purposes and making a financial return. 

These changes have made the guidance much more accessible and should enable a wide range of charity trustees to gain a better understanding of the Commission’s expectations.

2. Trustee duties

Throughout the guidance, trustees’ duties have been emphasised and at times, examples have been provided. This includes specifying that trustees must not allow their ‘personal motives, opinions or interests’ to affect the decisions they make. 

Greater significance has also been placed on taking advice and delegating. This is a clear statement that the Commission expects all charities to take professional advice before making and reviewing investments, unless they have good reason not to. They also expect charities that invest to have a written investment policy. 

If your charity is structured as a trust or an unincorporated association, these are not just expectations but requirements. The distinction here is now very clear. Professional advice can be provided by investment advisers or managers but does not have to be from an external source if there is expertise within your charity.

3. The best interests of the charity

As might be expected, following the Commission’s engagement work and the Butler-Sloss case, the updated guidance has softened the wording around trustees’ duty to seek the ‘best financial return’ at an appropriate risk level. There is instead more emphasis on generating a financial return and trustees’ ability to exclude investments that they believe conflict with their charity’s purposes, acknowledging that this can be the case even where it may hinder returns.

This is welcome news for trustees looking to implement ethical or sustainable restrictions on their investments. It provides confidence that they have a certain level of discretion about how to best exercise their investment decisions. However, above all, trustees have a duty to do what is in the best interest of the charity and its purposes. Therefore, when implementing certain investment strategies or introducing restrictions, trustees still need to think carefully about the relevance to their charity and how these decisions further their charitable purposes.

Other updates to CC14 include:

• Greater information on use of collective funds and expectations on trustees to assess their suitability.
• More frequent reference to the need for knowledge, understanding and review of investment charges.
• New ‘high risk investments’ section, further emphasising the need to seek advice and if such investments are made, ensuring that clear evidence of decision making is recorded.
• Removal of some references to taxation on investments, which is instead replaced with a link to HMRC guidance.

Key takeaway

The updated guidance is much more user friendly with more concise information applicable to a wide range of charities. However, as is to be expected when taking a broader approach to guidance, it does not fully explore the range of investment options available to charities. Furthermore, the removal of some specifics and increased emphasis on assessment of suitability further increases the burden on trustees and need to seek expert advice if they are to ensure that their action is appropriate for their charity and legal requirements.