Update from the Charity Commission: Investment guidance for trustees 

Investment guidance for trustees, September 2023

The Charity Commission for England and Wales published its updated investment guidance, Investing Charity Money: A Guide for Trustees, on August 1. The guidance (known as CC14) has been updated to provide “greater clarity and to give trustees confidence to make investment decisions that are right for their charity”.

This article is to provide you with a comprehensive overview of the key changes outlined in the new guidance and the actions you should consider. Because we also understand the importance of practical implementation, we have included helpful checklists provided by provided by the Charity Commission that you can use to assess whether your charity operates in line with the new guidance. It should be noted that this is guidance and is not binding in law. 

Updated charity investment guidance for trustees

The new guidance provides a list of principles for trustees to follow when making investment decisions. The term “investment” is used to include any outlay of funds with the expectation of receiving a financial return. Charity trustees must exercise all their powers to further the purposes of their charities, and this includes powers of investment. In addition to general trustee duties, the guidance specifies trustee duties for financial and social investments.
What should trustees consider when making investment decisions? Action (Y/N)
Consider whether the investments are suitable for your charity and whether they will meet its investment objectives. This means examining the suitability of both the investment type (for example, shares) and particular investments within that type (for example, shares in a specific business). In some cases, factors other than investment performance will be relevant.   
Consider the need to diversify investments, if appropriate to your charity, to spread the risk (for example, owning shares in a number of different companies or sectors).  
Take advice from someone experienced in investment matters unless you have a good reason for not doing so; for example, you have enough expertise in your trustee group, or you have limited or low-value investments.  
Review your charity’s investments at appropriate intervals.  

The new guidance replaces the previously used terms “programme-related investment”, “ethical investment” and “mixed-motive investment” with “social investment”. Social investments are those that achieve the charity’s purpose directly through investment and also make a financial return. The Commission explains that it is the responsibility of trustees to determine whether these investments are ultimately in the best interest of the charity’s objectives. The guidance also highlights that trustees may aim to avoid investments that conflict with the charity’s purposes or harm its reputation.

The Commission outlines that, before making social investments, trustees must consider the following: 

What should trustees consider when making a social investment? Action (Y/N)
Decide whether you should take any advice about the social investment and consider any advice given.  
Determine whether the social investment fits with your charity’s overall financial position, spending plans and plans for achieving its purposes.  
Establish what you expect from the investment — both in terms of the financial return and in helping you to achieve your charity’s purposes.  
Consider the risk that the social investment will not deliver (or will underperform) on your expectations.  
Consider the cost of making the investment  
Think about how long you plan to have your charity’s money invested and your exit arrangements.  
Determine how you will measure and monitor performance of the social investment  
Consider the tax treatment of the investment  

A section of the guidance is dedicated to helping trustees set an investment policy, with considerations including risk-and-return profile, timeframe for investment and access to the charity’s money (liquidity). It is clear from the guidance that all charities are expected to have a written policy setting out the charity’s purposes and plans and how the charity’s investments fit within these. 

The checklist below provides guidance for charities when designing and reviewing their investment policies. The Commission also suggests taking independent expert advice when setting or reviewing the investment policy. 

What should trustees consider when setting an investment policy? Action (Y/N)
Determine what, if anything, your charity’s governing document says about how you must invest.  
Establish your charity’s investment objectives, including any relevant reputational and other nonfinancial factors.  
Examine any sectors or organisations you deem to be in conflict with your charity’s purposes.  
Consider your timeframe for investment — short, medium or long term.  
Think about how often you will need access to your charity’s money and how easy that access should be.  
Understand your charity’s attitude to risk.  
Consider your approach, if any, to ESG factors and to your engagement with the companies in which you invest.  
Keep in mind how you monitor and review your investments, including key benchmarks.  
Consider who your investment advisers and managers are, their responsibilities and remits, and how you work with them.  
Review the policy regularly, and discuss it with new trustees.  

A new section of the guidance concentrates on taking advice from someone experienced in investment matters. The Commission expects that all investing charities should take professional advice when making and reviewing their investments. This advice should be given by an investment adviser (such as Mercer), a manager (where it’s able to provide regulated investment advice) or a trustee with relevant experience and ability.  

If you decide not to take external professional advice, trustees are encouraged to keep a record of the justifications for this decision. Note that if a trustee gives professional advice to its charity, the trustee is responsible for the quality of that advice.  

An additional section of the guide provides guidance for trustees when delegating decision-making to an investment manager (discretionary management). The guide explicitly states that a formal contract with the manager is required when delegating and should be subject to regular review. Trustees must also include details of the responsibilities of their investment managers/delegated functions when drafting their policy statements.

What should trustees consider when appointing an investment manager? Action (Y/N)?
Ask how they will deliver on your investment policy, including any reputational and other nonfinancial objectives.  
Examine the type and number of portfolios they manage.  
Consider the value of the assets they manage.  
Consider their experience of managing charity investments.  
Ask about their fees and charges in the short and long term.  
Consider their investment selection and risk-review process.  
Determine their ability to adapt their approach to suit your charity.  
What should trustees consider when reviewing the performance of an investment manager? Action (Y/N)?
Analyse how well the manager is performing.  
Determine whether the manager is complying with your charity’s investment policy.  
Consider whether the terms of the appointment are still appropriate.  
Decide whether the manager is still suitable for the role.  

The guidance recommends that trustees review the charity’s investments on a regular basis. Trustees should hold a review if the charity’s investments underperform against their targets or if there is a change in economic outlook or a significant change in the charity’s financial position or priorities.

The guidance also highlights that trustees must write an annual report if the charity is registered with the Charity Commission.

What should the trustees consider? Action (Y/N)?
Consider how your charity’s investments have performed during the year.  
Take into account your investment policy, including any nonfinancial aims you have for your charity’s investments.  
Mercer supports this updated guidance, and we appreciate its clarity and the straightforward language it uses. The guidance places some new responsibilities on charity trustees and formalises the review and reporting requirements of charity investors. This paper, and the checklists enclosed, are intended to help you assess whether your charity operates in line with the new guidance.

Download our paper

We want trustees to feel empowered by this new investment guidance. To do so, you can download all this information in an easily accessible format.

Important notices

Information contained herein has been obtained from a range of third-party sources, and Mercer has not sought to verify this information independently. As such, Mercer makes no representations or warranties as to the accuracy of the information presented and takes no responsibility or liability (including for indirect, consequential or incidental damages) for any error, omission or inaccuracy in the data supplied by any third party.

This webpage contains confidential and proprietary information of Mercer and is intended for the exclusive use of the parties to whom it was provided by Mercer. Its content may not be modified, sold or otherwise provided, in whole or in part, to any other person or entity, without Mercer’s prior written permission.

This webpage does not contain regulated investment advice in respect of actions you should take. No investment decision should be made based on this information without obtaining prior specific, professional advice relating to your own circumstances.

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