The Charity Commission is to consult on revised guidance on responsible investments, in a bid to provide greater clarity for trustees
The announcement follows a listening exercise undertaken by the regulator last year, which found, among other things, that the way responsible investment is outlined in its current guidance is not giving some trustees sufficient confidence that they can consider, or that the Commission supports, this approach to investment.
‘Responsible investments’ refers to financial investments that align with a charity’s mission and purpose.
The listening exercise identified two areas of difficulty. Firstly, there were technical difficulties to responsible investing, with wide differences in interpretations of the legal framework which led to uncertainty about decisions trustees are legally allowed to make.
Some trustees said they believe the case law is ‘outdated’ and at odds with public expectations of how charities should behave.
Others felt they are unable to make responsible investments, because they perceive they have an overriding legal duty to maximise the financial returns when investing, regardless of any other consideration.
Secondly, there were a number of technical barriers. Charity trustees and CEOs said they were anxious about making mistakes and the potential for resulting liability.
The Commission said this is compounded by gaps in trustee knowledge and limited access to practical support. Many trustees see the area of investments as challenging and are concerned that they do not have enough knowledge or expertise.
Some highlighted a perception that by investing responsibly, they were sacrificing financial returns, and therefore income for the charity, while the use of jargon or inconsistent terminology makes it harder for trustees to understand, challenge or hold to account those advising them.
The Commission plans to publish draft guidance in spring of this year for a public consultation, supported by a refreshed interpretation of the law in this area. The final updated responsible investments guidance is expected this summer.
Paul Latham, director of communications and policy at the Charity Commission, said: ‘It is not for the Commission to instruct charities on how to invest their assets.
‘But it is part of our role to ensure our guidance keeps pace with wider changes in society, so that charities feel confident to invest and use their resources effectively in line with their purpose, and be accountable to the public and donors.’