New guidance on social investment by charities replaces earlier version that was considered unclear
The Charity Commission has published guidance that makes it clear that charities can invest their funds for a social return, and can make ethical investments even if this offers lower financial returns than other investments.
The guidance, called Charities and Investment Matters, is published today and replaces the regulator’s previous guidance on social investment.
The previous guidance, written in 2003, has been criticised for not giving trustees enough reassurance that social investment was permitted.
Sam Younger, Charity Commission chief executive, said the new guidance aimed to "encourage charities to make confident decisions about investments that serve their charities’ interests".
He added: "It reassures trustees that, so long as they can demonstrate that they have reached a reasonable decision having considered the relevant issues, they are unlikely to be criticised for adopting a particular investment policy."
The document says programme-related investment, in which a charity invests money as a way of furthering its aims rather than to generate a financial return, is an acceptable use of a charity’s funds. It says the money must be invested to further the written objects of the charity.
It says examples of these investments include making small loans to organisations or individuals to fund housing deposits or new equipment, and investing large sums in regeneration projects.
The document says trustees should consider the risks involved with this form of investment, such as the potential for private benefit to recipients or to other investors, before using it.
Such benefits should be "necessary, reasonable and in the interests of the charity," the guidance says.
The guidance also says trustees "can decide to invest ethically, even if the investment might provide a lower rate of return than an alternative investment".
It says trustees must be able to demonstrate that this form of investment is in the best interests of the charity and must "be clear about the reasons why certain companies or sectors are excluded or included" from their investment portfolio.
The commission’s guidance also says charities can engage in stakeholder activism, in which they express views about the organisations they have invested in, ask those organisations for information and use any voting rights to influence the organisation’s policies.