Consultation on the Charity Commission's guidance on charities and investment, CC14: Charities and Investment Matters, closed at the end of last month, and already there is concern about whether the commission has got it right.
The guidance covers all charity investment, but the most significant changes relate to social investment. Some think the guidance doesn't give trustees enough reassurance to invest socially; others feel it encourages them too strongly to do so.
Historically, charities have invested to maximise financial returns in order to further their aims. Trustees are responsible for ensuring this happens. However, more charities now want their investments to deliver social as well as financial returns - by buying shares in ethical businesses or lending to charities to buy buildings, for example.
The commission's guidance, which generated 63 responses during the 12-week consultation, was last updated in 2003 when the social investment market was limited. It is now worth £200m a year, but this amount remains small compared with the tens of billions of pounds that charities control.
Many trustees want to increase their social investments but are uncertain whether they can do so while still meeting their fiduciary duties. It was largely to remove this uncertainty that, in 2009, the commission announced plans to amend its guidance. The process was under way when, in November last year, the Cabinet Office minister, Francis Maude, called for urgent publication of the guidance.
The draft proposals divide social investment into four categories: financial, ethical, mission-connected and programme-related. It says charities can make "mixed-purpose" investments, which have both financial and social elements.
David Hutchinson, chief executive of Social Finance, a social enterprise that helps the third sector access capital, describes the guidance as "very prescriptive". He adds: "It's more rules-based than principles-based. It speaks a lot about the need for 'best financial return'. I'd prefer if it talked about the right balance of financial return with mission and risk."
Danielle Walker Palmour, chief executive of the Friends Provident Foundation, which invests 5 per cent of its capital in programme-related investment, doesn't think the guidance will increase trustee confidence in social investment. "It just sets more rules," she says. "If anything, it will put charities off."
She says staff and trustees have come to hold different views on programme-related investment. "Many foundation staff are really interested in it," she says. "They feel capital hasn't been creatively used. Trustees are more cautious." This caution, she argues, is partly because trustees' involvement in the sector is part time, meaning they are less tuned in to the latest thinking, and partly because they have ultimate responsibility for charities' funds.
Geoff Burnand, chief investment officer of Charity Bank, is confident the final guidance will empower trustees to make programme-related investments. But Andrew Pitt, head of charities at the investment house UBS, is concerned that the prominence of social investment in the guidance might encourage some trustees to invest too heavily. "Social investment is a new area," he says. "Equities and bonds have been around for a long time. Many social investments are difficult to measure; there's a lot of uncertainty around them.
"If I was a charity trustee, I would want to tread pretty carefully. I think many would like to see a lot more evidence."
James Perry, chief executive of Panahpur, which plans to be the first charitable trust to put all of its money into social investment, says the guidance could help to grow the market. "There's a massive opportunity here if the commission gets it right," he says. "There's a significant appetite for social investment among charitable funds because they feel it's a more effective way of achieving their goals."