New tool to strengthen charity investment governance

On 16 January 2025, the Charity Investment Governance Principles were launched. These are a new tool to support charity trustees in evaluating and improving their charity’s governance around financial investment and social investment activity.

Their aim is to help charities strengthen governance in managing their investments, providing charity leaders with greater clarity and confidence when making decisions about investments.

Hosted on a standalone website, the Principles follow the same format as the Charity Governance Code and can be used alongside or independently of the Code. Case studies, examples, explainers and links to sources of further information are provided to assist with their practical application.

Helpful guidance is also provided on responsible, impact and social investment and writing an investment policy (with links to example policies of selected charitable foundations, such as the Friends Provident Foundation and Esmee Fairbairn Foundation).

The Principles are designed for charities of all sizes in England and Wales. A simplified version is provided for smaller charities that mainly keep money in a savings or deposit account.

Our involvement

Elizabeth Jones, Partner at Farrer & Co, was one of only two charity law experts chosen to provide advice to the steering group that developed the Principles. We encourage charities to use the new tool to audit and benchmark their current investment practices and systems, with a view to improvement.

In time, we hope that the Principles will play a crucial role in promoting responsible and sustainable investment practices by giving more charity trustees the confidence to adopt policies that seek to achieve a balance between financial returns and their charity’s purposes.

Seven Principles

The Principles are organised into the following seven categories:

Each Principle has a brief description, a rationale (why it is important) and key outcomes (what a charity would expect to see if the principle were adopted), before setting out what a charity might do to implement it (the practice that is either required by law or regulatory guidance or recommended best practice).

Why the Principles were needed

One of the drivers behind creating the Principles was a recent High Court decision [1] which provided greater clarity on the approach charity trustees should take to adopting a responsible (or ethical) investment policy.

In this case, the High Court granted the trustees of two charitable trusts (the Ashden Trust and the Mark Leonard Trust) permission to adopt investment policies that aligned their charity's investments with its charitable purposes, even if it risked diminishing financial returns by excluding a significant portion of the market.

Both charities were established with purposes to protect and improve the environment. The trustees wanted to adopt policies that enabled them to exclude, as far as practicably possible, investments that did not align with the 2016 Paris Agreement on Climate Change. This excluded over half of publicly traded companies and commercially available investment funds.

The court considered the effect of the previous leading decision [2] on the issue, and held that charity trustees:

• Are not prohibited from making investments that directly conflict with their charity's purposes.
• Have discretion as to how to exercise their powers of investment, including where there is a direct conflict between the potential investment and their charity’s purposes.

The court helpfully confirmed the latitude that charity trustees have to adopt an investment policy that fits to the purposes and broader circumstances of their charity in a meaningful and focussed manner.

While this confirmation was welcomed by charity advisers, it presents charity trustees with a challenge in determining how to approach assessing the extent to which investments or classes of investments have the potential to conflict with charitable purposes or otherwise pose a reputational risk to the charity.

The idea behind the Principles was therefore to provide charity trustees with a tool to support and structure their approach to investing, cognisant of the breadth of their discretion.

However, the Principles are not a legal or regulatory requirement. For charities in England and Wales, the legal requirements and regulatory expectations are set out in the Charity Commission’s guidance, Investing charity money: guidance for trustees (CC14). The Principles build on this guidance, providing additional help to those involved in charity investment decisions, including charity trustees, staff and committee members.

While targeted at charities in England and Wales, it is hoped that the Principles will be a useful tool for charities in Scotland, Northern Ireland and elsewhere.

Developing the Principles

The Principles were developed by a steering group made up of Charity Finance Group, Association of Charitable Foundations, National Council for Voluntary Organisations, Wales Council for Voluntary Action and the Secretariat of the Charities Responsible Investment Network. Representatives from the Charity Commission joined the project as independent observers.

They were shaped by extensive consultation, including surveys, focus groups and feedback from over 100 charities (ranging from fundraising charities to endowed foundations and universities). Input was received from charity lawyers, chartered accountants, investment managers and advisers and other relevant stakeholders.

[1] Butler-Sloss and others v Charity Commission for England and Wales and another [2022] EWHC 974.

[2] Harries v Church Commissioners for England [1992] 1 WLR 1241, better known as the Bishop of Oxford case.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, March 2025