2. Leadership
Description
The board provides leadership on investments, supported by a strong governance structure and delegation framework.
Rationale
The board has ultimate and collective responsibility for the charity's investments. Depending on the charity's context, a number of other individuals and organisations may be involved in helping to determine the charity's strategic approach to investments, for example staff members, a finance/investment committee or an external investment manager or investment adviser. A strong governance structure and delegation framework will ensure the board has access to resource and expertise to carry out their legal oversight duties in relation to the charity's investments.
Key outcomes
- All trustees understand their duties in relation to investments.
- The charity has a governance structure and mechanisms for governing investments which reflect the size and complexity of the investments held.
- There is a framework for delegation appropriate to the charity's size and the complexity of the investments held.
Practice
Leadership
Trustee duties
As set out in the Charity Commission's CC14 Investing charity money guidance, trustees must follow the principles of good decision making, act with reasonable care and skill and keep a record of decisions made regarding investments and how these were reached.
The Principles will help trustees (and those working with them) to understand the range of factors which can be considered in relation to the charity's investments to assist with good decision-making.
Recommendations for decisions which should be recorded are referenced throughout the Principles.
For more on acting with reasonable care and skill, see Principle 4 & Principle 5.
For more on taking advice, see Principle 4.
For more on delegating, see Principle 2 - delegation framework and Principle 4 - working with external providers.
In addition to guidance on making decisions in CC14, the Charity Commission also provides guidance on 'decision-making for charity trustees (CC27)'.
Governance structure
All trustees understand that a range of skills, experience and viewpoints among those individuals with oversight of the charity's investments leads to stronger practice. Trustees and staff explore and enact methods to ensure that the charity's investment governance structure is inclusive.
The charity has sufficient finance or investment resource and expertise, among trustees, staff or committee members, commensurate with the size and complexity of the investments held:
- where a charity has limited investments held in a bank account, oversight and control are provided by a minimum of two individuals or by an existing committee with finance responsibilities
- where a charity has investments beyond a bank account, but these are not substantial or complex, oversight is provided by a minimum of two individuals, one of whom has some financial understanding, or by an existing committee with finance responsibilities.
Investments beyond a bank account might include a common deposit fund, cash-like investments or a portfolio with a range of investments, including pooled funds. These investments are likely to provide the charity with greater financial returns over the long-term than holding cash in a bank account but also carry more risk.
The two individuals providing oversight could be trustees, staff or committee members.
Financial understanding might include a background in running a business, working in a finance department, accountancy, banking or investment management. It might also include experience from managing their own personal investments. Any individual with financial understanding should be able to demonstrate an understanding of the types of investments held by the charity.
Substantial investments includes charities holding over £20mn, though charities with less than this amount may also consider establishing an investment committee (see point below on charities with substantial investments). Complex investments might include charities with a diversified investment portfolio of different asset classes, or where a number of investment managers are used, including pooled funds. Trustees should consider their charity’s context.
- where a charity has substantial or complex investments, a sub-committee of the board is established with closer oversight of the investments. This committee may oversee both finance and investment. The committee may include trustees, staff and co-opted members. Individuals with expertise in the charity's purposes are included in the committee.
Substantial investments includes charities holding over £20mn, though charities with less than this amount may also consider establishing an investment committee.
Complex investments might include charities with a diversified investment portfolio of different asset classes, or where a number of investment managers are used, including pooled funds. Trustees should consider their charity’s context.
Individuals on the committee could include trustees or staff with expertise in finance and investment, and may also include co-opted members. Charities taking professional advice from a trustee should ensure they follow the relevant CC14 guidance. The co-opted members could either be volunteers or paid advisers with investment expertise. Consideration should also be given to how those with expertise in the charity's purposes will be represented on the committee.
Where paid advisers are used within the governance structure to help oversee investments, either as committee members or more commonly as advisers to the committee, any advice given should be impartial.
In some instances the whole board might wish to be involved rather than establishing a sub-committee. In this instance, consideration should be given to whether there is sufficient time and capacity within the board to effectively oversee investments.
Any committee with investment oversight responsibilities has a clear Terms of Reference setting out the tasks and responsibilities of committee members, and the relationship between the committee and the board. The Terms of Reference are reviewed and updated at appropriate intervals.
The committee may take on or assist trustees with a variety of tasks, including:
- reviewing, making recommendations and contributing to writing the charity's investment policy
- appointing, monitoring and reviewing the charity's investment managers and/or investment advisers, their performance in relation to targets in the investment policy, their fees and charges
- setting risk and return benchmarks for the investment portfolio and monitoring performance
- ensuring the charity's purposes are placed at the forefront, that the investments further and support the purposes, and that conflicts and reputational risks are avoided and managed
The Terms of Reference for the committee can include:
- reference to the delegation framework on which tasks are delegated to the committee from the board
- frequency of meetings, preparation time, any additional time commitments
- governance of the committee, for example will there be a Chair, how will decisions be taken
- how often and through what methods the committee will report to the board
- information will be provided in a timely way
- meetings will be run in an inclusive manner (see Principle 6 - inclusion)
- appointments to the committee (see Principle 5 - recruitment)
The Terms of Reference should be updated to reflect any changes in the operations of the committee, and reviewed at appropriate intervals, for example every 4-5 years in line with a review of professional providers (eg investment managers and investment advisers).
The Geological Society (charity number 210161)
Turn2Us (charity number 207812)
If the charity intends to make social investments, trustees/staff/committee members ensure the charity has access to sufficient expertise to make and oversee any social investments, including from those with expertise in the charity's purposes.
Social investments can be overseen within the existing governance structure, for example by the same trustees/committee members overseeing the charity's investments. Where a charity is making numerous social investments into external organisations, it may be beneficial to establish a separate social investment committee. Regardless of the governance structure chosen, the charity may seek individuals with relevant expertise, this might include financial understanding (eg business owner, accountant), investment management experience, experience in delivering social impact (eg from working in a charity or social enterprise), insights into the charity's purposes (eg lived or learned experience relating to the purposes). Recruitment of individuals should take into account the potentially very different goals, and risk/return profiles of social investments in comparison to mainstream investment management.Expertise may also come from staff members or external professional providers (eg legal or social investment consultants).
Good Finance Investment Committees of the Future programme is 'designed to increase the numbers of individuals bringing improved diversity and greater lived experience to investment decision making'.
Delegation framework
A delegation framework is created by trustees, with support from staff or committee members, setting out which decisions are taken at board level, by staff, by a committee (if applicable) and by external organisations such as investment managers or investment advisers. The delegation framework sets an appropriate level of control depending on the size and complexity of the charity's investments. The framework is approved by the board and reviewed at appropriate intervals.
A delegation framework (also known as a ‘scheme of delegation’), sets out how decisions will be made and certain functions carried out, including who will make decisions. Investments might be covered in a broader delegation framework developed by the charity, or as a standalone framework. The delegation framework must be approved by the trustees. Trustees should review the delegation framework on an annual basis, or whenever changes are made, and retain the power to override or revoke a delegation.
The framework can include:
Responsibilities of the Trustees:
- the board of Trustees (or equivalent) has ultimate responsibility for investment governance within the Charity (and listing any other body with investment governance responsibilities within the charity, for example a Local Authority)
- Trustees, with advice from staff and committee members as needed, set the financial targets for the investments. This will typically involve determining the financial needs of the organisation and understanding to what extent these will be met by the investments (for many charities financial needs will be met from fundraising rather than investment returns).
- Trustees approve the appointment of professional providers (for example investment managers, investment advisers) and approve the investment policy
- Trustees approve asset allocation and risk appetite levels, this would typically be based on recommendations from a committee, staff member or professional provider.
- Trustees have the power to delegate certain responsibilities (as outlined in the governing document or as a legal power) to a committee or staff member
Responsibilities delegated to a committee or staff member which are subject to board approval might include:
- setting investment targets in line with the financial needs of the charity and realistic predictions of investment performance
- conducting a search for a professional provider and a review every 4-5 years
- recommending appropriate asset allocation and risk levels for investments
- writing and updating the investment policy
Decisions taken at committee level not subject to board approval might include:
- identifying benchmarks
- monitoring the performance of professional providers
Decisions taken by professional provider subject to committee approval might include:
- request to change asset class boundaries
Decisions taken by professional provider not subject to approval might include:
- making investment decisions (buying or selling particular investments) in line with the investment policy, including the asset allocation and risk parameters approved by the trustees
- day-to-day management of the investments
Responsibilities delegated to a staff member might include:
- overseeing and liaising with professional providers on a day-to-day basis
- working with the committee to discharge the responsibilities listed above
The delegation framework should be reviewed whenever changes are needed, and as part of a professional provider review every 4-5 years.
Any trustees, staff or committee members with delegated investment oversight responsibilities report to the board at appropriate intervals so that the board maintains responsibility and oversight.
Appropriate intervals will be for the charity to determine.
For charities with a bank account/cash-like investments this might involve a quarterly update on the amount held and where, with a yearly review of whether better interest rates or financial returns are available.
For charities with more complex investments, those with investment oversight responsibilities could give a short quarterly update to all trustees, though it should be noted that there may be fluctuations in the value of investments over short time periods which will not result in immediate changes to the overall investment strategy. Trustees can also consider taking less frequent deeper dives into the charity's investments, for example a longer annual update on performance, a session exploring how the investments further and support the charity's purposes or how conflicts with the charity's purposes and reputational risks are managed.
Leadership
Trustee duties
As set out in the Charity Commission's CC14 Investing charity money guidance, trustees must follow the principles of good decision making, act with reasonable care and skill and keep a record of decisions made regarding investments and how these were reached.
The Principles will help trustees (and those working with them) to understand the range of factors which can be considered in relation to the charity's investments to assist with good decision-making.
Recommendations for decisions which should be recorded are referenced throughout the Principles.
For more on acting with reasonable care and skill, see Principle 4 & Principle 5.
For more on taking advice, see Principle 4.
For more on delegating, see Principle 2 - delegation framework and Principle 4 - working with external providers.
In addition to guidance on making decisions in CC14, the Charity Commission also provides guidance on 'decision-making for charity trustees (CC27)'.
Governance structure
All trustees understand that a range of skills, experience and viewpoints among those individuals with oversight of the charity's investments leads to stronger practice. Trustees and staff explore and enact methods to ensure that the charity's investment governance structure is inclusive.
The charity has sufficient finance or investment resource and expertise, among trustees, staff or committee members, commensurate with the size and complexity of the investments held:
- where a charity has limited investments held in a bank account, oversight and control are provided by a minimum of two individuals or by an existing committee with finance responsibilities
- where a charity has investments beyond a bank account, but these are not substantial or complex, oversight is provided by a minimum of two individuals, one of whom has some financial understanding, or by an existing committee with finance responsibilities.
Investments beyond a bank account might include a common deposit fund, cash-like investments or a portfolio with a range of investments, including pooled funds. These investments are likely to provide the charity with greater financial returns over the long-term than holding cash in a bank account but also carry more risk.
The two individuals providing oversight could be trustees, staff or committee members.
Financial understanding might include a background in running a business, working in a finance department, accountancy, banking or investment management. It might also include experience from managing their own personal investments. Any individual with financial understanding should be able to demonstrate an understanding of the types of investments held by the charity.
Substantial investments includes charities holding over £20mn, though charities with less than this amount may also consider establishing an investment committee (see point below on charities with substantial investments). Complex investments might include charities with a diversified investment portfolio of different asset classes, or where a number of investment managers are used, including pooled funds. Trustees should consider their charity’s context.
- where a charity has substantial or complex investments, a sub-committee of the board is established with closer oversight of the investments. This committee may oversee both finance and investment. The committee may include trustees, staff and co-opted members. Individuals with expertise in the charity's purposes are included in the committee.
Substantial investments includes charities holding over £20mn, though charities with less than this amount may also consider establishing an investment committee.
Complex investments might include charities with a diversified investment portfolio of different asset classes, or where a number of investment managers are used, including pooled funds. Trustees should consider their charity’s context.
Individuals on the committee could include trustees or staff with expertise in finance and investment, and may also include co-opted members. Charities taking professional advice from a trustee should ensure they follow the relevant CC14 guidance. The co-opted members could either be volunteers or paid advisers with investment expertise. Consideration should also be given to how those with expertise in the charity's purposes will be represented on the committee.
Where paid advisers are used within the governance structure to help oversee investments, either as committee members or more commonly as advisers to the committee, any advice given should be impartial.
In some instances the whole board might wish to be involved rather than establishing a sub-committee. In this instance, consideration should be given to whether there is sufficient time and capacity within the board to effectively oversee investments.
Any committee with investment oversight responsibilities has a clear Terms of Reference setting out the tasks and responsibilities of committee members, and the relationship between the committee and the board. The Terms of Reference are reviewed and updated at appropriate intervals.
The committee may take on or assist trustees with a variety of tasks, including:
- reviewing, making recommendations and contributing to writing the charity's investment policy
- appointing, monitoring and reviewing the charity's investment managers and/or investment advisers, their performance in relation to targets in the investment policy, their fees and charges
- setting risk and return benchmarks for the investment portfolio and monitoring performance
- ensuring the charity's purposes are placed at the forefront, that the investments further and support the purposes, and that conflicts and reputational risks are avoided and managed
The Terms of Reference for the committee can include:
- reference to the delegation framework on which tasks are delegated to the committee from the board
- frequency of meetings, preparation time, any additional time commitments
- governance of the committee, for example will there be a Chair, how will decisions be taken
- how often and through what methods the committee will report to the board
- information will be provided in a timely way
- meetings will be run in an inclusive manner (see Principle 6 - inclusion)
- appointments to the committee (see Principle 5 - recruitment)
The Terms of Reference should be updated to reflect any changes in the operations of the committee, and reviewed at appropriate intervals, for example every 4-5 years in line with a review of professional providers (eg investment managers and investment advisers).
The Geological Society (charity number 210161)
Turn2Us (charity number 207812)
If the charity intends to make social investments, trustees/staff/committee members ensure the charity has access to sufficient expertise to make and oversee any social investments, including from those with expertise in the charity's purposes.
Social investments can be overseen within the existing governance structure, for example by the same trustees/committee members overseeing the charity's investments. Where a charity is making numerous social investments into external organisations, it may be beneficial to establish a separate social investment committee. Regardless of the governance structure chosen, the charity may seek individuals with relevant expertise, this might include financial understanding (eg business owner, accountant), investment management experience, experience in delivering social impact (eg from working in a charity or social enterprise), insights into the charity's purposes (eg lived or learned experience relating to the purposes). Recruitment of individuals should take into account the potentially very different goals, and risk/return profiles of social investments in comparison to mainstream investment management.Expertise may also come from staff members or external professional providers (eg legal or social investment consultants).
Good Finance Investment Committees of the Future programme is 'designed to increase the numbers of individuals bringing improved diversity and greater lived experience to investment decision making'.
Delegation framework
A delegation framework is created by trustees, with support from staff or committee members, setting out which decisions are taken at board level, by staff, by a committee (if applicable) and by external organisations such as investment managers or investment advisers. The delegation framework sets an appropriate level of control depending on the size and complexity of the charity's investments. The framework is approved by the board and reviewed at appropriate intervals.
A delegation framework (also known as a ‘scheme of delegation’), sets out how decisions will be made and certain functions carried out, including who will make decisions. Investments might be covered in a broader delegation framework developed by the charity, or as a standalone framework. The delegation framework must be approved by the trustees. Trustees should review the delegation framework on an annual basis, or whenever changes are made, and retain the power to override or revoke a delegation.
The framework can include:
Responsibilities of the Trustees:
- the board of Trustees (or equivalent) has ultimate responsibility for investment governance within the Charity (and listing any other body with investment governance responsibilities within the charity, for example a Local Authority)
- Trustees, with advice from staff and committee members as needed, set the financial targets for the investments. This will typically involve determining the financial needs of the organisation and understanding to what extent these will be met by the investments (for many charities financial needs will be met from fundraising rather than investment returns).
- Trustees approve the appointment of professional providers (for example investment managers, investment advisers) and approve the investment policy
- Trustees approve asset allocation and risk appetite levels, this would typically be based on recommendations from a committee, staff member or professional provider.
- Trustees have the power to delegate certain responsibilities (as outlined in the governing document or as a legal power) to a committee or staff member
Responsibilities delegated to a committee or staff member which are subject to board approval might include:
- setting investment targets in line with the financial needs of the charity and realistic predictions of investment performance
- conducting a search for a professional provider and a review every 4-5 years
- recommending appropriate asset allocation and risk levels for investments
- writing and updating the investment policy
Decisions taken at committee level not subject to board approval might include:
- identifying benchmarks
- monitoring the performance of professional providers
Decisions taken by professional provider subject to committee approval might include:
- request to change asset class boundaries
Decisions taken by professional provider not subject to approval might include:
- making investment decisions (buying or selling particular investments) in line with the investment policy, including the asset allocation and risk parameters approved by the trustees
- day-to-day management of the investments
Responsibilities delegated to a staff member might include:
- overseeing and liaising with professional providers on a day-to-day basis
- working with the committee to discharge the responsibilities listed above
The delegation framework should be reviewed whenever changes are needed, and as part of a professional provider review every 4-5 years.
Any trustees, staff or committee members with delegated investment oversight responsibilities report to the board at appropriate intervals so that the board maintains responsibility and oversight.
Appropriate intervals will be for the charity to determine.
For charities with a bank account/cash-like investments this might involve a quarterly update on the amount held and where, with a yearly review of whether better interest rates or financial returns are available.
For charities with more complex investments, those with investment oversight responsibilities could give a short quarterly update to all trustees, though it should be noted that there may be fluctuations in the value of investments over short time periods which will not result in immediate changes to the overall investment strategy. Trustees can also consider taking less frequent deeper dives into the charity's investments, for example a longer annual update on performance, a session exploring how the investments further and support the charity's purposes or how conflicts with the charity's purposes and reputational risks are managed.
