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Charity trustees - balancing financial return and social return on investment

One of the more frequent problems faced by charity trustees is that of balancing the need for charity investments to produce financial benefits with the desire for them to also produce social benefits.

Fortunately, the Charity Commission has now updated its guidance for charity trustees, outlining how they should approach this problem and confirming the conditions under which a social outcome, rather than a financial outcome, may be sought.

Where trustees are taking financial investment decisions, they must:

  • not breach the charity’s powers to invest as contained in its constitution;
  • exercise reasonable care and skill;
  • choose investments that are appropriate for their charity, taking account of the need to spread the charity’s investments and taking expert investment advice (and consider using an investment manager where appropriate);
  • strike an appropriate balance between risk and return;
  • keep investments under periodical review; and
  • explain their investment policy in their annual report.
  • Consider taking professional advice

However, where the investment policy is ‘programme related investment’ (PRI)

  • i.e. related to the objects of the charity
  • the duties of the trustees are to:
    • demonstrate that the PRI furthers the charity’s aims for public benefit;
    • ensure that any private benefit received is incidental to the aims of the charity or is recoverable for the charity; and
    • be clear about how they can end a PRI if, for any reason, it ceases to further the aims of the charity.

Contact Alison Westbrook for advice on any charity law issue.