New Charity Investment Governance Principles give greater clarity to trustees

Jeffrey Ball
Director, Wealth Manager – Charities
RBC Brewin Dolphin

In a first for the charity sector, Charity Finance Group (CFG) has developed Charity Investment Governance Principles (CIGPs), a set of guidelines designed to give charities more confidence when making investment decisions. Jeffrey Ball, Director, Wealth Manager – Charities, explores the principles.

The principles come hot on the heels of the 2023 update to the Charity Commission’s guidelines on investing charity money (CC14) and complement the existing Charity Governance Code.

Key principles

A steering group consulted with over 100 charities and several advisers, with the Charity Commission acting as an independent adviser. As a result, the following seven principles were created to promote excellence in financial decision-making by charity leaders:

1. Purpose of investments

It is essential that trustees have a shared understanding of why they are investing, and that it is a way to further the charity’s purpose.

CC14 reminds charities, even small ones, to consider their investment strategy, which includes cash in the bank. Charities can create a sustainable financial platform by making reserves work harder, generating a better financial return and increasing impact for beneficiaries. It’s therefore essential that any legal responsibilities, investment requirements or restrictions, and crucially, the charity’s time horizon, are understood and recorded.

2. Leadership

Even for charities with large executive teams, it is the trustees who have ultimate and collective responsibility for the charity’s investments.

Trustees typically form an investment committee or have finance staff working with an external manager, with at least two experienced trustees providing oversight.

Decisions are guided by clear terms of reference and are reviewed by the full board.

3. Integrity

Charities are ultimately for public benefit; therefore, it is essential that the charity’s purposes are at the forefront of any investment decisions.

Trustees must remember that personal opinions or interests must not influence or conflict with any decisions relating to the charity’s investments. Trustees must document conflicts of interest and risks to avoid reputational harm and prevent private benefit.

When investing, charities must balance potential benefits against risks, prioritising the charity’s best interests and aligning investments with its purposes. This ensures responsible decision-making and compliance with the CC14 guidelines.

4. Decision-making, risk and control

Through effective leadership, with integrity, it means effective systems can be established to ensure good decisions are made. Charity trustees must understand their risk appetite, seek expert advice where needed, and monitor investments regularly to ensure they align with the charity’s goals.

Trustees should have a valid reason for not seeking advice, such as sufficient in-house expertise or low-value investments. An investment manager will primarily be responsible for monitoring and reviewing investments to ensure they align with the charity’s goals.

5. Effectiveness

It is key that the board has confidence in the delegated oversight and the underlying processes are effective.

Charity trustees often lack investment expertise or experience, so it’s crucial they’re confident that those responsible for investment decisions have the right skills and knowledge. The level of this oversight should match the size and complexity of the investments, giving trustees the confidence to ask questions and challenge decisions. Investments should be given dedicated time for discussion at trustee meetings.

6. Equity, diversity and inclusion

The board ensures that all those involved in the charity’s investments are committed to understanding and actioning equity, diversity and inclusion.

Including diverse perspectives and viewpoints in investment decisions can lead to better outcomes, while a lack of diversity can result in groupthink and weaker decision-making.

Meetings encourage broad discussion with equity, diversity and inclusion built into topics of discussion when talking about investments. This can consist of areas such as responsible investment, social investment, addressing the climate crisis, or the origin of the charity’s assets.

7. Openness and accountability

Building trust through openness and accountability helps all charities deliver their public benefit.

Charities should clearly disclose their investment policies in annual reports or websites, and the board should consider how these decisions might affect their reputation among stakeholders and the public.

The annual report should include how the investments have performed over the year and what is included in the investment policy. Typically, the charity’s main investment adviser is named. Alongside required accounting information, a charity should include why it invests, how it furthers its purposes, what its governance structure is and its mechanisms for addressing any conflicts or risks.

RBC Brewin Dolphin’s work with charities

These principles provide a strong framework for investing, but it’s essential to discuss them with an experienced investment manager who specialises in charitable investments and is aware of the CIGPs.

The value of investments, and any income from them, can fall and you may get back less than you invested. This does not constitute tax or legal advice. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. You should always check the tax implications with an accountant or tax specialist. Information is provided only as an example and is not a recommendation to pursue a particular strategy.

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