|Law Commission Recommendations on Social Investments by Charities|
The Law Commission (of England and Wales) has released its recommendations with regard to social investment by charities as part of its Charity Law – Selected Issues project. The recommendations are aimed at solving some of the difficulties faced by trustees under the current law.
Responses to the consultation paper on this matter were released earlier this year and highlighted that some charity trustees 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. Furthermore, the responses revealed that some fear that social investment might entail breaching their duties as charity trustees.
Where the charity is a trust, the trustees will be subject to the provisions of the Trustee Act 2000. According to the report, social investment is unlikely to play a part in a diversified portfolio, because it is not selected for its financial return and when compared with a mainstream financial investment, a social investment may carry a particularly high risk or it may be unjustifiably large within a charity’s investment portfolio.
The Law Commission has recommended the following: creation of a new statutory power for charity trustees to make social investments (which will apply unless excluded or modified by the charity’s governing documents); making it clear that charity trustees are permitted to use permanent endowment to make social investments, provided they expect the capital value of the endowment to be preserved; introduction of statutory duties specific to social investment; and improvement to the Charity Commission and HMRC tax guidance on social investment, among others.
A further Law Commission consultation paper on issues in charity Law is scheduled for February 2015.
The opinions expressed do not constitute investment advice and specialist advice should be sought about your specific circumstances.
Published on our website on Oct.10, 2014