Clarifying the legal framework for social investment by charities
Social investment provides financial returns while at the same time generating social benefits. It is an important and developing area for charities, enabling them to meet their charitable objectives by combining investment and spending. In a consultation opening today the Law Commission is seeking views on the law that governs how charities make social investments.
Many charities are already involved in social investment and the existing law is not proving an impediment to them. There is some concern, however, that the law is unclear on the precise powers and duties of charity trustees in this developing field. There is a risk that some trustees may be deterred from engaging with social investment owing to the complexity and lack of clarity in the current law.
The Law Commission’s consultation paper analyses the legal framework, explains the ways in which the law already supports charity trustees and proposes changes that would clarify the way in which charities can use social investments to achieve their charitable aims. The Commission is asking whether the introduction of a new statutory power to make social investments (sitting alongside existing powers), and a checklist of factors that may be considered by trustees, would bring clarity and certainty and give trustees more confidence in making social investments.
The Commission is also reviewing the circumstances in which charities with permanent endowment can use their endowment to make social investments.
Professor Elizabeth Cooke, the Law Commissioner leading the project, said:
“Charities have a special place in society. The contribution they make is made possible, in part, by how they spend their money.
“Social investment is an important and developing area for charities. The reforms we are proposing would make social investment more straightforward legally. We are asking consultees: would our proposals help trustees to make the best of the opportunities offered by social investment?”
The consultation paper is available on www.lawcom.gov.uk. The consultation closes on 18 June 2014.
