Social Investment by Charities Review

The Law Commission in the UK is conducting a review of selected issues in charity law including social investment by charities and a proposal for the introduction of a new statutory power to make social investments.

The Commission said its terms of reference were to consider charity trustees’ powers to make, and duties when making, social investments and to consider whether anything could be done by way of law reform to make those powers and duties clearer.

“The Consultation Paper considers the current law and the difficulties that charities face under the current law when making social investments,” it said.

In its explanatory notes, the Commission said that to achieve their charitable purposes, charities have traditionally both spent their funds in support of their charitable objectives, and invested so as to generate further funds for future initiatives (for example, purchasing shares in listed companies to provide an income).

A charity making a social investment combines these objectives in one transaction, seeking to achieve both its charitable purposes and a financial benefit.

“Many charity trustees can, and do, make social investments without having any concerns about the scope of their powers and duties. Some charity trustees, however, are not confident about making social investments because they are unsure whether their powers under the charity’s governing document or under the general law authorise such investments.

“In addition, some charity trustees considering whether to make social investments may feel that they risk breaching their duties.

“In the Consultation Paper we provisionally propose the introduction of a new statutory power to make social investments. We do not suggest that the new power should replace charity trustees’ existing powers, but rather that it should supplement them, forming part of the toolbox available to achieve charities’ purposes.

“We provisionally propose that the new statutory power should be accompanied by a non-exhaustive checklist of factors that charity trustees may take into account in deciding whether to make a social investment.”

The Consultation Paper also considered whether charities with permanent endowment could use the endowment to make social investments.

“We conclude that permanent endowment can be used to make social investments which are anticipated to preserve the capital value of the endowment. We do not propose that there should be a further power to use permanent endowment to make social investments which are not expected to preserve capital,” the Commission said. 

The Law Commission is inviting consultees’ views on its provisional proposals and consultation questions in the Consultation Paper.

“After the consultation period closes on 18 June 2014, we will analyse the responses and review, in discussion with Government, how to take this aspect of the Charity Law project forward."

The consultation relates to the  Charity Law – Selected Issues project.

• Social Investment by Charities Consultation [PDF, 2.35mb]
• Social Investment by Charities Consultation Summary [PDF, 0.03mb]
• Social Investment by Charities Consultation Response Form [Word 0.08]

The Law Commission is an advisory public body sponsored by the UK Ministry of Justice.