The Office of the Scottish Charity Regulator (“OSCR”) has published its much anticipated guidance on “Charity Investments: Guidance and Good Practice”. Charity trustees can sometimes feel out of their depth when dealing with financial matters and the guidance aims to improve their confidence in dealing with charity investments by better understanding the investment choices available to them. It also considers the associated risks and their duties relating to investment. The guidance will be useful to charities with existing investment portfolios as well as first time investors.
It explains why charity trustees may want to consider investing and that one size doesn’t fit all. Some key points to remember:
• Investing is not always about generating a financial return. Some charities invest to deliver a social or environmental return that may be equally, if not more valuable. This reflects the growing desire within the charities sector to more closely monitor the impact of their work.
• That investing is not without risk. Doing nothing with a charity’s assets however can also be a significant, if not greater risk over time.
• To regularly review all investment decisions. This ensures that the investments remain linked to the charity’s goals at all times. Circumstances and needs change. Don’t feel bound by the investment decisions made by an earlier body of charity trustees.
• Check the terms of your constitution. Do you have the power to invest? Are there any restrictions to take into account? What does the legislation relevant to your particular constitutional form allow you to do? Would it be better to amend the terms of your constitution? If in doubt, always seek specialist advice.
Trustee duties and responsibilities
The guidance also considers the legal duties and responsibilities of charity trustees in an investment context.
• It emphasises that charity trustees in Scotland are not under a duty to maximise financial return. If it is in line with its charitable purposes, investments can also provide a social or environmental return. “Active stewardship” means charities can for example ask their investment manager to speak to a company they are invested in to try and bring about positive social change if needed. OSCR use the example of seeking to use active stewardship to improve poor employment practices.
• It explains that the duty to act with care and diligence as set out in the Charities and Trustee Investment (Scotland) Act 2005, has particular implications when assessing investment risk. So for example, as an individual, you can consent to a high level of investment risk with your own finances, but this may be inappropriate for a charity.
• Remember that investment decisions are the collective responsibility of all charity trustees. This means that all charity trustees must have a basic understanding of the charity’s finances. This applies even where charities have separate finance or investment committees. It is good to see the importance of collective responsibility being emphasised in the guidance.
Setting out your investment strategy
• Having decided on the kind of investments your charity may or may not want to invest in, the charity trustees can develop or review the charity’s investment policy statement.
• There is no fixed format for an investment policy statement. Trustees should make sure that their policy reflects the particular needs of the charity.
• The guidance considers the content of the investment policy statement in more detail.
• Larger charities with an income of £500,000 or more should already be aware that they must explain their investment policy within their Trustees’ Annual Report.
This guidance will be essential reading for all charity trustees and will play a part in the good governance of every charity. It is important for all charities to make investment decisions that are right for them. It is also particularly refreshing to see social and environmental investments being promoted in addition to generating a financial return. We consider that the guidance helps charity trustees to become better informed about the investment options available to them and engage in the decision-making process. Part of this challenge is also recognising when and what kind of advice your charity might need.