Investing for good: the Charity Commission’s updated guidance on investment matters

The UK Charity Commission’s updated guidance on investment matters came into effect on 1 August 2023. The guidance reflects the changes in the legal and regulatory framework for charities and investments. Some of the key differences between the 2011 version and the new 2023 version are:

• The new guidance is shorter and clearer, with less technical jargon and more practical examples. It aims to help trustees make confident and informed decisions about investing charity funds or assets.
• The new guidance does not use the terms ‘ethical’ or ‘responsible’ investments, which were considered vague and confusing by some charities. Instead, it emphasises that trustees must act in the best interests of their charity and its beneficiaries, and consider all relevant factors, including financial and non-financial ones, when making investment decisions.
• The new guidance also does not use the terms ‘mixed-motive investment’ and ‘programme-related investment’, which were forms of social investment that involved both financial and social returns. Instead, it uses the term ‘social investment’ as defined by the Charities (Protection and Social Investment) Act 2016, which allows trustees to make investments that further their charity’s purposes or achieve a positive social impact, even if they may not generate a financial return or may involve taking on more risk.
• The new guidance reflects the recent court judgment on trustee investment duties (the Butler-Sloss vs Charity Commission 2022 High Court judgment), which clarified that trustees have wide discretion in making investment decisions, as long as they act prudently, lawfully, and in accordance with their governing document. The judgment also confirmed that trustees can exclude certain investments based on non-financial considerations, such as ethical or environmental factors, as long as they are satisfied that this is in line with their charity’s purposes and values.

Ultimately, the new guidance is clear that the main duty of trustees’ is to advance the charity’s purpose. This means that they should make investment decisions that support the purpose and follow the legal duties and requirements set out in the new guidance. They should also act in the charity’s best interests and regularly review their investment approach.

A set of Charity Investment Governance Principles is currently being developed to sit alongside CC14, which will become part of the Charity Governance Code.

If you would like to discuss the updated guidance in more detail, please don’t hesitate to reach out to our Charities Team.