The new social investment power - what does it mean for trustees?

As part of the GET INFORMED campaign, Oliver Hunt of BWB, discusses what the 2016 Charities (and Social Investment) Act means specifically for trustees.


Written by

Oliver Hunt, Solicitor, Bates Wells Braithwaite

The new statutory power for charities to make social investments came into force on 31 July 2016. It confirms charities’ ability to make social investments, and clarifies the duties of charity trustees when authorising social investments. “Social investment” means investing resources with a view to both directly furthering the charity’s purposes and achieving a financial return for the charity. Most charities already have the power to make social investments (and many have been doing so for decades), and the power is not meant to be a radical change to the law. However, it does bring helpful clarity, and should allow trustees to consider social investment proposals whilst confident of the legal framework that supports them. 

The trustee duties that accompany the power require that, when making social investments, trustees must:

a) consider whether in all the circumstances they should obtain any advice about the proposed social investment;

b) obtain and consider any advice they decide ought to be obtained; and

c) satisfy themselves that it is in the interests of the charity to make the social investment, having regard to the benefit they expect to achieve for the charity (by directly furthering the charity’s purposes and achieving a financial return).

Trustees are also required to review the social investments they have made from time to time.

The key consideration will be (c) - whether the trustees can satisfy themselves that the social investment is in the interests of the charity, when balancing the “mission” benefit and the financial return which the investment is intended to achieve. Of course, the facts and circumstances of each investment and each charity will be different, and the new power is deliberately not prescriptive about what makes an investment “in the interests of” every charity. As in other areas of charity law, this is left to the discretion of the trustees. The Charity Commission’s guidance on the new power includes a helpful checklist of factors to consider, such as the duration of the social investment, the risks of the investment failing to deliver the expected mission benefit and financial return, and how the performance of the social investment will be measured, assessed and monitored.

The Charity Commission has also said it is reviewing its guidance on charity investment matters generally this year, after which further materials on the new power may be available.

The government introduced the power after a recommendation from the Law Commission and as part of its social investment strategy. The intention is “to encourage trustees who can see the potential of social investment but have lacked the confidence to take it further” because of legal uncertainty. By providing a framework in law, the power is intended to “give confidence to trustees to add social investment to their existing armoury”. 

BWB advised Panahpur in late 2016 on how to apply the new power to one of Panahpur’s innovative social investment proposals. Andrew Matheson, Chair of Panahpur, commented: “Panahpur has been committed to social investments since 2008, and as trustees we were used to dealing with the legal framework that existed before the new power. Once we understood the background and intention of the new power, it proved to be a solid platform for our considerations and helped us think creatively and confidently about how we could use Panahpur’s resources in the most impactful way.” 

Find out more on how trusts, foundations and charities with investable assets can make social investments via the GET INFORMED campaign for board members.