Yesterday, the Charity Commission for England & Wales launched a consultation on changes to its charity investment guidance

The changes could have significant implications for charities that invest, including foundations (which invest around £70bn)

Here's my initial take

All charities have charitable purposes, which they are legally required to pursue

The assets they hold are governed and administered in pursuit of these purposes

Many grant-making foundations have endowments that are invested to generate an income, which enables a grants budget

While all boards hope to achieve a strong financial return, some are more intentional in their efforts to align these investments with their charitable objectives

Many seek to avoid investments that are likely to contradict their charity's mission or cause societal harm

However, for some charities, their purposes don't overtly lend themselves to guiding investment choices or screening

Current regulatory guidance is a bit vague on whether trustees are permitted to invest in ways that are ethical, but not lucrative or unaligned to their purposes

The Commission says the changes proposed aim "to help charities understand in clearer terms that responsible investment is an option they can choose or continue with."

But...

It then goes on to state:

"The Commission is explicitly not introducing any rule or expectation that investor charities should take a responsible investment approach, beyond what may be required by the terms of their governing document"

And...

The Commission also states that:

"It is also an important purpose of the guidance therefore to clarify that trustees have wide discretion and may prefer to focus on financial return and choose not to use a responsible investment approach."

While the clarity that trustees can choose 'responsible investment' is helpful to an extent, it is problematic.

If the alternative to 'responsible investment' is 'irresponsible investment', I'm not sure this should merely be an option - it should be a requirement

It states charities can:

"Generate money which you can spend on your charity’s purposes - ‘financial investment’

Achieve your charity’s purposes more directly - social, programme-related, or mixed motive investment

You can choose one or both of these aims for your investments"

To me this presents a false binary

It shouldn't be a choice between financial investment and achieving the charity's purposes

All charity investment should aim to achieve the charity's purpose. Some investments might be more proactive in this effort, some less so. Each has risk

Similarly:

"You can decide that rather than just focussing on the financial return on an investment, your approach will also take into account your charity’s purposes and values"

It seems odd that taking account of purposes and values is an optional extra, rather than a minimum

The consultation is open until mid-May. @ACFoundations will produce a full response, which we will share with members to assist their own thinking

In conclusion

Some of the proposed changes are welcome - they bring clarity and have a more permissive tone

But...

Some of the language is problematic (and there is a consultation question specifically on the phrase 'responsible investment')

The false binary between 'financial return' and 'taking account of the charity's purposes and values' does not seem in keeping with societal expectation

Please let me know your views, as we develop our formal response

If you want to read the consultation and take part it's here: https://www.gov.uk/government/consultations/charity-responsible-investment-guidance