The Law Commission will consider what can be done to clarify the law around mixed-purpose social investment as part of its review of charity law, it has announced.
A mixed-purpose investment is one in which a charity aims to achieve both financial return and a social benefit.
The Law Commission said its review, which began in April, would consider "whether anything can be done by way of law reform to make clearer the powers and duties of charity trustees in undertaking mixed-purpose investment".
The Law Commission’s charity law project, which will run until March, is already looking at issues raised by Lord Hodgson’s review of the Charities Act 2006 and charities that are structured as charitable corporations by royal charter or by statute.
The commission said it had agreed with the Cabinet Office to add mixed-purpose investment to the scope of its review.
In a statement, the Law Commission said that although Charity Commission guidance was available to trustees on mixed-purpose investments, such investments were not "well accommodated by the law".
"This can deter trustees from taking advantage of social investment opportunities and result in high transaction costs," the statement said.
The review will also consider the introduction of a new legal power that would allow charities to invest non-functional permanent endowments in mixed-purpose investments, as recommended by Hodgson in his review.
The Law Commission’s statement said that its review would focus purely on the law behind mixed-purpose investments and would not seek to "extend the potential for social investment by charities to confer private benefit".
Professor Elizabeth Cooke, the commissioner in charge of the charity law project, said mixed-purpose investment was a growing area about which charities wanted more information.
She said the review would focus on the existing law and establish whether it was clear enough for trustees. "The task of being a trustee is big enough; the law should support trustees and their beneficiaries," said Cooke. "It’s in nobody’s interest for trustees to not know what they can and can’t do."
The Law Commission expects to open a consultation on its project as a whole in summer next year.