Law Commission consultation paper on social investment by charities

On 24 April 2014, the Law Commission published a consultation paper on social investment by charities which concluded that current uncertainties in the law may provide a disincentive to some charities wishing to make social investments. Therefore, the Law Commission has made the following provisional proposals:

• To introduce a new statutory power for charity trustees to make social investments, with social investment meaning any use of funds from which a charity seeks to achieve both its charitable purposes and a financial benefit. The new power would apply unless it has been expressly excluded or modified by the charity’s governing document.
• That the new statutory power be accompanied by the following checklist of factors that charity trustees may take into account when deciding whether to make a social investment:
  • the anticipated overall benefit from the social investment;
  • the duration of the social investment;
  • the risks of the social investment failing or under-performing;
  • how the performance of the social investment will be monitored;
  • whether and how often the social investment will be reviewed;
  • whether the charity trustees should obtain advice from a suitable person on all, or any aspect of, the social investment and, if so, the substance of that advice;
  • the relationship between the social investment and the charity’s overall investment portfolio (if any) and its spending or grant-making policies; and
  • any other relevant factors.
• That, when exercising the new power, charity trustees should not be required to comply with the duties under the Trustee Act 2000 to consider the standard investment criteria, to review investments periodically and to consider obtaining advice.

The Law Commission is seeking views on its provisional proposals (by 18 June 2014) together with comments on:

• whether the current law governing social investment by charities is satisfactory;
• the Charity Commission’s current investment guidance;
• whether the requirements under the Trustee Act 2000 to consider the standard investment criteria, review investments periodically and consider obtaining advice should be excluded whenever trustees of a charity are making social investments; and
• whether the current law concerning the use of permanent endowment to make social investments is satisfactory and, if respondents consider that it is not, how it should be reformed.For more information or social investment by charities and trustee obligations or to discuss your requirements contact one of our charity solicitors today on 01895 207809 or email charities@ibblaw.co.uk.