The applicable law on charity investments depends on factors such as the charity’s legal form (trust, company or charitable incorporated organisation), the scope of investments to be chosen, the duties and responsibilities to be followed in relation to investing, and any investment restrictions set out in the document which governs the charity.

Trustees have long had the option to make financial investments in ways that align with their charity’s purpose and values. Previously labelled ‘ethical investment’ the Charity Commission has now changed the description to ‘responsible investment’.

‘Responsible investment is, rather than just focusing on the financial return on an investment, taking into account your charity’s purposes and values when making financial investments,’ the consultation document states.

In the consultation, the Charity Commission stressed that it wanted ‘to address the issue of responsible investment first, which the sector tells us is an important and pressing issue, and consult to ensure that this part of the guidance is improved’.

‘The result of the redesign, which we will test with trustees, will be to improve the clarity of the guidance, using the same simpler style of this draft opening section on which we are now consulting,’ it added.

In the past there has been resistance from some trustees as they felt they were unable to make responsible investments, because they had an overriding legal duty to maximise the financial returns when investing, regardless of any other consideration. There were also concerns that there is insufficient assurance that trustees can decide to take a responsible approach to investment.

The Charity Commission has developed an updated draft of the opening sections of its investment guidance, including an explanation of trustees’ ability to adopt a responsible investment approach.

The current guidance will be replaced by revised sections. In drafting these revised sections of the guidance, the priority is to describe in clear, simple language the duties that trustees have when making financial investments, and the discretion trustees have to decide whether or not to adopt a responsible investment approach.

Charity Commission, Responsible investment: draft guidance for consultation