Written evidence from the Chief Executive of the Charity Commission [WCC 0001]

You wrote on 19 December to say that Members of the Committee have been concerned by recent media reports on charity investments, particularly the BBC Panorama programme and its focus on Comic Relief, and asking for a note detailing the Commission's guidance on investments.

The law on charity investments and the Commission's guidance

As the regulator, we do not favour or promote particular investment policies; our concern is that trustees fulfil their duty of prudence in managing their investments. It is for trustees to make decisions about how to invest their charities ' funds. Our guidance offers a clear framework for decision making, but emphasises that it is up to trustees to decide on the most appropriate overall investment strategy for their charity, seeking professional advice as appropriate.

The law is clear that the primary aim of investment for charities is to get the best possible return consistent with risk, so that the charity can use that return to meet the needs of the people who depend on their grants or services.

Trustees are required to explain their investment policy in their annual accounts, which are available publicly on the Commission's online register, and follow any restrictions detailed in their governing document. They must minimise risk to the charity's funds, and consider which investment will get the best return for the level of risk deemed acceptable. This allows the public to determine what investment policies are being followed and use that information to make up their minds about whether to support the charity or not.

Our guidance states clearly that trustees of any charity can decide to invest ethically, even if the investment might provide a lower rate of return than an alternative investment. However, a charity's trustees must be able to justify why it is in the charity's best interests to invest in this way.

The law permits ethical investment for the following reasons:

• a particular investment conflicts with the aims of the charity; or
• the charity might lose supporters or beneficiaries if it does not invest ethically; or there is no significant financial detriment.

Trustees must account for their investment policy in their accounts and this disclosure means that the public can determine whether the charity has an ethical policy or not and they can use that information to make up their minds about whether to support the charity or not. We advise in our guidance that, as a result of this public scrutiny on the investment policies that charities adopt, trustees may want to consider what their donors and supporters would think about the morality of particular investments and consider this risk in their decision making.

BBC Panorama and Comic Relief

As Members of the Committee will know if they have seen the Panorama broadcast on 10

December, we gave the programme makers written information about charity law on investments and our guidance (among other topics) and I gave an interview on camera. We were clear about the legal issues around ethical investment by charities and the Commission's advice. In correspondence directly with Comic Relief we also made sure they understood our advice.

Following the programme's broadcast, the Commission has assessed Comic Relief's approach to investment and we have found no grounds for regulatory concern. However, we would expect any charity to review its investment policies if serious concerns are raised about its approach which might have a significant impact on the charity 's reputation and its ability to raise funds for its charitable work. We understand Comic Relief is now undertaking such a review.

As your letter notes, Kevin Cahill commented in an interview on BBC Radio 4 World at One that the Commission's guidance on the circumstances when trustees may adopt an ethical investment policy leaves some room for doubt. I cannot agree that this is the case, and this has not been echoed more widely. Our guidance does leave trustees to make their own decisions, based on their own assessment of the risks involved, but this is an essential element of the freedom trustees have to direct their charity's affairs.

I hope this gives the Committee the information you need, and look forward to answering your questions on 4 February.

29 January 2014