Understanding the legal responsibilities of trustees
Charity trustees hold a fiduciary duty to manage their organisation's assets responsibly, ensuring that all investment decisions align with the charity's objectives and comply with prevailing legal frameworks. The Charity Commission's guidance, Investing Charity Money: A Guide for Trustees (CC14), serves as a pivotal resource, outlining trustees' duties concerning investment decisions. This guidance emphasises the importance of acting prudently, adhering to the charity's governing documents, and considering the suitability of investments in relation to the charity's aims.
Key legal responsibilities include:
Duty of care
Trustees must exercise reasonable care and skill when making investment decisions, considering factors such as diversification, risk, and the expected return from the investment portfolio.
Compliance with governing documents
Trustees should ensure that their charity's governing documents do not impose any restrictions on the types of investments that can be made. If such restrictions exist, trustees must adhere to them or seek amendments where appropriate.
Acting in the charity's best interests
All investment decisions should prioritize the charity's beneficiaries and long-term sustainability, avoiding conflicts of interest and ensuring that personal biases do not influence decisions.
Regular review of investments
Trustees are expected to monitor and review their investment portfolio regularly, ensuring that it continues to meet the charity's objectives and adjusting strategies in response to changing circumstances.
Charity investment law
Types of charity investments recognised by law
Charities can engage in various forms of investments, each serving different purposes and aligning with the organisation's objectives:
- Financial Investments: These are traditional investments aimed at generating income or capital growth. They include assets such as stocks, bonds, and investment funds. The primary goal is to achieve the best financial return within an acceptable level of risk.
- Social Investment: The Commission has defined social investment as investing with the objective of helping to achieve a charity’s purpose directly through the investment, whilst also aiming to make a financial return. Separate guidance on social investment has now been incorporated into CC14 and the guidance sets out matters that trustees should give consideration to when making decisions about social investments.
The impact of the Butler-Sloss case
The Butler-Sloss v Charity Commission case in 2022 was a landmark ruling that provided clarity on the extent to which trustees can consider ethical factors in their investment decisions. The High Court affirmed that trustees could prioritise investments that align with their charity's purposes, even if such choices might result in lower financial returns. This case underscored the principle that ethical considerations could be integral to investment decisions, especially when misaligned investments could harm the charity's reputation or contradict its mission.
Following this ruling, the Charity Commission updated its CC14 guidance in August 2023 to reflect these developments, providing trustees with clearer direction on incorporating ethical considerations into their investment strategies.
Resources for compliance
To navigate the complex legal landscape of charity investments, trustees can consult the following resources:
- Charity Commission’s CC14 Guidance: This document offers comprehensive guidance on trustees' duties concerning investments, including legal requirements, considerations for different types of investments, and the importance of aligning investment strategies with the charity's purposes.
- Charity Investment Governance Principles (CIGP): Launched by the Charity Finance Group, the CIGP provides a framework to assist trustees in making informed investment decisions, emphasizing best practices in governance and ethical considerations.
- Professional Legal Advice: Legal professionals who specialize in charity law can provide tailored guidance, ensuring that investment strategies comply with legal obligations and align with the charity's objectives.
By diligently adhering to these legal and regulatory frameworks, trustees can ensure that their investment decisions not only comply with the law but also advance the mission and sustainability of their charity.
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Developing an investment policy.
This case underscored the principle that ethical considerations could be integral to investment decisions, especially when misaligned investments could harm the charity's reputation or contradict its mission