A charity's purposes are what it is set up to achieve. The purposes will be listed in the charity's governing document.

‍For most charities, investment will focus on investment of the charity's reserves (this includes monies held in a bank account and those held in an investment portfolio) or monies held for a particular project.

For some charities, particularly those with an endowment or substantial reserves, investments will also provide financial returns (income or capital growth) to fund the charity's activities.

Investments can also be used to further the charity's purposes beyond financial returns, for example via responsible, impact or social investment.

All trustees should have a shared understanding of the charity's purposes and how the charity intends to achieve those purposes through its work, and in turn how any investments held by the charity help to achieve the purposes.

1. Purposes as set out in the charity’s governing document. The full trustee board should explore these to ensure clarity and shared understanding.

2. The full trustee board, supported by staff and committee members, works together to explore and identify potential conflicts. Starting points for discussion might include:

• those trustees or staff with particular expertise in the charity's purposes (for example a trustee with a research background at a health charity) proposing particular industries or sectors which might pose a conflict
• considering direct and indirect conflicts (for example a gambling awareness charity might consider profits from gambling to be a direct conflict, whereas the climate crisis is an indirect conflict which will affect the charity's ability to further its purposes in the future)
• trustees and staff with a broad range of experience brainstorming those industries or sector which might pose a conflict
• key areas which other charities have considered excluding or restricting their investments in, for example: alcohol; animal testing; weapons; activities contributing to the climate crisis or biodiversity loss; gambling; human rights infringements; labour standards; pornography; tobacco
• asking the charity's investment manager or investment adviser for a list of which industries and sectors the companies in the charity's current portfolio operate in, and any in-house or external ESG scoring they use to identify potentially risky industries or companies
• Discussions must centre on the charity’s purposes and trustees must not allow personal motives, opinions or interests to affect the decisions they make. As CC14 notes, 'Trustees need to be careful in relation to making decisions as to investments on purely moral grounds, recognising that among the charity's supporters and grantees/service users there may be differing legitimate moral views on certain issues.' Some investments pose a financial risk without being in conflict with the charity's purposes.

3. Conduct a balancing exercise - The Butler Sloss legal judgement noted that 'where there are difficult decisions to be made involving potential conflicts or reputational damage, the trustees need to exercise good judgment by balancing all relevant factors in particular the extent of the potential conflict against the risk of financial detriment.'

• to ascertain the likelihood and seriousness of the potential conflict. This might involve discussion at the trustee board, with staff and with stakeholders; hearing from experts or considering alternative views. There may be disagreements and difficult decisions, the Chair should ensure these are managed so all voices are heard.
• utilise expertise within your board/committee, from your investment manager/adviser, and if needed from external experts, to ascertain the likelihood and seriousness of any potential financial effect of excluding or restricting investments which conflict with the charity’s purposes. Those providing expertise with regard to the financial effects must be able to evidence the financial effects in a way the whole trustee board can understand. Financial effects might include an increase or decrease in volatility, or a change to the potential returns (income or capital gains). Financial effects should be considered over a suitable time period, for example a shorter term time horizon for charities holding a small amount of monies in reserve or a long term time horizon for charities holding an endowment and intending to exist over the longer term.

4. Balance the potential conflict with the financial effect and determine which conflicts with purposes need to be avoided or managed. This should be recorded in the investment policy.

Friends Provident Foundation (charity number 1087053)

Barrow Cadbury Trust (charity number 1115476)

Guy's & St Thomas' Foundation (charity number 1160316) Investment and Property

Asthma + Lung UK (charity number 326730) strategy includes a commitment to fight for clean air for all, wherever an individual lives or is born in the UK. Recognised investments as the area where the charity could make the biggest reductions in its carbon footprint, and set out a plan to move the charity's investments and annual contributions to staff pensions out of fossil fuels wherever possible.

Worldwide Fund for Nature (charity number: 1081247) 2022/23 Annual Report states ‘WWF-UK’s investment policy is to maintain the real value of our investments and to maximise income by way of a diversified portfolio consistent with the trustees’ legal powers and duties. This is underpinned by our socially responsible investment policy, which promotes the principles of sustainable development and improvements to the environment and is designed to ensure there is no exposure to investments that may be inconsistent with our mission and objectives. A large range of potential investments are excluded on this basis, including any investments in the fossil fuel industry, the extractives industry or the aviation sector, while also taking into account positive, socially responsible, environmental and governance investment criteria. All equity investments are screened to ensure the portfolio complies with our investment policy.’

New Cross Gate Trust (charity number: 1118010) 'Lettings Policy: The New Cross Gate Trust funds a significant proportion of its charitable activities and support for other local community groups using income generated from a number of residential and commercial properties. These properties were purchased by Central Government’s New Deal for Communities scheme (2001-2011) and asset transferred to the Trust in 2013 on the understanding that we would use the rental income from the properties to support our charitable objectives.In accordance with Charity Commission guidance the purpose of these investments is to yield the best financial return for the Trust. We will comply with this requirement while at the same time ensuring that the businesses that occupy our commercial properties assist us in meeting our charitable objectives. We will encourage tenants that make a positive contribution to the area; aesthetically, economically, and socially. We will not lease our commercial properties to businesses whose activities are contrary to the achievement of these objectives, for example bookmakers or short-term loan companies. For our residential properties, we will be a good landlord, providing a responsive service to our tenants and providing them with secure, well maintained properties, stable tenure and fair rent.'

Methods for avoiding or managing a conflict include:

• divesting (selling all currently owned investments) and avoiding future investments in a particular company, industry or sector
• limiting investment in a particular industry or sector, for example limiting the percentage of revenue or profits a company can derive from the conflicting area, or limiting investments in a fund to a percentage from a particular industry or sector
• using responsible investment approaches to seek to avoid or manage a conflict.

The conflict, and any limits or restrictions, should be noted in the investment policy and discussed with investment managers and advisers.

How and to what extent conflicts can be avoided or managed may depend on the size of the charity's assets and the nature of its investments. For example in the case of a bank account or pooled fund the charity will be choosing between different providers with existing limits or restrictions in place and could then select the bank account or pooled fund which is most closely aligned to the charity's need to avoid or manage a conflict. For charities with bespoke portfolios, the portfolio can be tailored to the charity's particular circumstances.

See also the responsible investment section and investment policy examples avoiding conflicts with purposes.

Reputational risks could result from

• a conflict with purposes (eg health charity investing in tobacco; social justice charity investing in predatory lending)
• concerns of donors, grantees and the broader public about particular industries (eg indiscriminate weapons, tar sands, pornography)
• negative impacts of the investments (eg companies causing harm to local communities or nature)

The full trustee board, supported by staff and committee members, works together to explore and identify potential reputational risks. Starting points for discussion might include:

• the views or anticipated reactions of stakeholders, which might include donors, service users and grantees
• trustees and staff with a broad range of experience brainstorming those industries or sector which might pose a reputational risk
• key areas which other charities have considered excluding or restricting their investments in, for example: alcohol; animal testing; weapons; activities contributing to the climate crisis or biodiversity loss; gambling; human rights infringements; labour standards; pornography; tobacco
• asking the charity's investment manager or investment adviser for a list of which industries and sectors the companies in the charity's current portfolio operate in, and any in-house or external ESG scoring they use to identify potentially risky industries or companies

2. Conduct a balancing exercise - The Butler Sloss legal judgement noted that 'where there are difficult decisions to be made involving potential conflicts or reputational damage, the trustees need to exercise good judgment by balancing all relevant factors in particular the extent of the potential conflict against the risk of financial detriment.'

• to ascertain the likelihood and seriousness of the reputational risk. This might involve discussion at the trustee board, with staff and with stakeholders; hearing from experts or considering alternative views. There may be disagreements and difficult decisions, the Chair should ensure these are managed so all voices are heard.
• utilise expertise within your board/committee, from your investment manager/adviser, and if needed from external experts, to ascertain the likelihood and seriousness of any potential financial effect of excluding or restricting investments which pose a reputational risk. Those providing expertise with regard to the financial effects must be able to evidence the financial effects in a way the whole trustee board can understand. Financial effects might include an increase or decrease in volatility, or a change to the potential returns (income or capital gains). Financial effects should be considered over a suitable time period, for example a shorter term time horizon for charities holding a small amount of monies in reserve or a long term time horizion for charities holding an endowment and intending to exist over the longer term.
• the financial effect due to a reputational risk causing a loss of support from donors should also be analysed and considered.

Balance the potential reputational risk with the financial effects and determine which reputational risks need to be avoided or managed. This should be recorded in the investment policy.

Methods for avoiding or managing a reputational risk include:

• divesting (selling all currently owned investments) and avoiding future investments in a particular company, industry or sector
• limiting investment in a particular industry or sector, for example limiting the percentage of revenue or profits a company can derive from the risk area, or limiting investments in a fund to a percentage from a particular industry or sector
• using responsible investment approaches to seek to avoid or manage a reputational risk

The reputational risk and any limits or restrictions should be noted in the investment policy and discussed with investment managers and advisers.

How and to what extent reputational risks can be avoided or managed may depend on the size of the charity's assets and the nature of its investments. For example in the case of a bank account or pooled fund the charity will be choosing between different providers with existing limits or restrictions in place and could then select the bank account or pooled fund which is most closely aligned to the charity's need to avoid or manage reputational risks. For charities with bespoke portfolios, the portfolio can be tailored to the charity's particular circumstances.

See also the responsible investment section and investment policy examples avoiding conflicts with purposes and bank account.

Whilst there are opportunities for charities of all sizes to use their voice and choices, there will typically be more opportunities available to those charities with significant assets.

For charities with a large amount of investments, held in pooled funds or a bespoke portfolio - see responsible, impact and social investment section- leadership and influence.

For charities with funds in a bank account, see ‘smaller charities that mainly invest cash’ for more on opportunities to align with the charity's purposes.

For charities with a large amount of investments, assets, held in pooled funds or a bespoke portfolio - see responsible, impact and social investment - collective action

Trustees, staff and committee members should be asked to disclose if any conflicts of interest exist. Any conflicts disclosed should be recorded and dealt with in line with the charity's policy for disclosure (eg a conflicts of interest policy) and governing document where applicable.

Conflicts of interest which might arise and actions the charity may take include:

A trustee or committee member has a significant shareholding that overlaps with the charity. This could be because a trustee/committee member has gifted shares to the charity or holds/held a key position within the company in which shares are held. 

Potential actions:

• the overlap is recognised prior to any discussions relating to the charity’s shareholding and recorded in the minutes
• trustees ensure there is sufficient diversity among the board/committee members that the individual with the overlap cannot influence discussions unduly
• trustees consider whether the individual needs to absent themselves from discussions 
• board/committee consider whether the shareholding should be retained or sold for diversification or to avoid a conflict of interest and whether this best serves the charity’s purposes

Trustees/committee members are employed or were previously employed by a professional provider used by the charity, or use that professional provider for their personal or business matters

Potential actions:

• the relationship is reiterated prior to any discussions regarding the professional provider, in particular in conversations relating to the performance, fees or renewal of the professional provider’s contract

Trustees/committee members are employed by a competitor to the professional providers (eg investment manager or investment adviser) used by the charity

Potential actions:

• committing to confidentiality, not sharing any knowledge gained within the charity context with their employer or colleagues
• recusing themselves from decisions where there is a conflict

Taking advice from a trustee/committee member with professional investment expertise

Potential actions:

• determine whether the trustee/committee member stands to gain a benefit (financial or otherwise) from giving advice to the charity and the effect of that benefit
• follow the guidance in CC14 on getting professional advice from a trustee - when taking advice from a professional provider such as an investment manager or investment adviser

When taking advice from a professional provider suchas an investment manager or investment adviser.

Potential actions:

• ensure there is sufficient trustee/committee oversight to determine the quality and suitability of the advice (see Principle 4)
• ensure the charity’s time horizon and investment approach is chosen to best deliver the charity’s purposes rather than to benefit the professional provider commercially
• if the advice is being given by an investment manager, determine whether that advice is independent or limited to the investment manager's own products, if advice is limited this should be recorded.
• any professional advice received is formal, documented and that the individual or organisation providing the advice is responsible for the quality of that advice

Hospitality or other benefits received from those receiving fees in relation to the charity's investments (eg investment managers or investment advisers)

Potential actions:

• hospitality and benefits register, with allowable limits

Charity Commission – managing conflicts of interest in a charity

NCVO – conflicts of interest policy template