7. Openness and accountability
Description
The value of openness and accountability in relation to the charity's investments is understood and acted upon.
Rationale
All charities deliver their purposes for the public benefit, and openness and accountability help to build trust and confidence in the charity. As a charity's investments are an integral part of its operations, being open and accountable about the investments is a key pillar in building trust and confidence.
Key outcomes
- The board has a shared understanding of how including information about the charity's investment policy and approach in its annual report and on the charity's website will help to build trust and confidence.
- Trustees/staff consider how the charity's investments might be regarded by the people and organisations who are involved in its work and by the wider public, and how any related reputational risks ought to be managed.
Practice
Openness and accountability
Publishing information about investments
The Trustees' annual report includes an explanation of:
- how the charity's investments have performed during the year
- what the charity's investment policy is, including any non-financial aims that you have for your charity’s investments
Smaller charities or charities with few or less complex investments do not need to include detailed information.
For smaller charities holding cash in a bank account, reporting on how the charity's investments have performed might include a statement to say the charity holds cash in a bank account and X% interest was received. Reporting what the charity’s investment policy is can include a short summary of the policy (see smaller charities that mainly invest cash). Non-financial aims might include methods to avoid conflicts with the charity’s purposes, reputational risks or social investments.
Both the Charity Commission and the Charities SORP would expect charities with larger investment portfolios to include more detailed information in the annual report.
In addition to any requirements under the Charities Statement of Recommended Practice (SORP) and the Charity Commission's reporting and accounting guidance, the following information is made available by publishing the charity's investment policy on its website and extracts from the investment policy in the charity's annual report:
- why the charity holds investments and how those investments support and further its purposes
- how the charity addresses any conflicts with its purposes and any reputational risks in relation to its investments
- governance structure relating to investments, and how trustees/committee members with investment oversight responsibilities are recruited
- the main external professional providers used by the charity for its investments (eg bank, investment manager, investment adviser)
- the charity's approach to social investments (if any are made)
Where the full investment policy isn't published on the charity's website, trustees/staff/committee members should explore the reasons for this and determine alternative ways the information could be made available, for example by publishing a simplified investment policy.
Information published by the charity about its investments should be provided in a way which is accessible to the charity's stakeholders where possible.
The Charities Statement of Recommended Practice (SORP) sets out how charities should prepare their accounts in accordance with the Financial Reporting Standard applicable in the UK. The Principles do not seek to set out all the requirements in the SORP and charity trustees/staff should consult the SORP when preparing accounts. SORP requirements include:
- reporting the financial performance of investments, investment management costs
- larger charities (income >£500k) to explain in the financial review 'where the charity holds material financial investments, the extent (if any) to which it takes social, environmental or ethical considerations into account in its investment policy.'
The SORP requires that 'The report must state to whom the trustees’ delegate day-to-day management of the charity and from whom trustees are taking advice. In particular...the names and addresses of any other relevant organisations or persons providing banking services or professional advice to the charity, including its...investment advisers'.
In practice, charities typically list their banking provider(s), investment manager(s) and investment adviser(s). Where an investment adviser is used, the adviser is typically listed but not the managers selected by the adviser.
For some charities the investment policy may contain granular detail inaccessible to a majority of stakeholders and publishing this would not help to increase openness and accountability. In these instances, charities could produce a version of the investment policy accessible to stakeholders to be made available. Charities in this position should also explore whether all trustees have a full understanding of the investment policy.
Where the full investment policy isn't published on the charity's website, trustees/staff/committee members should explore the reasons for this and determine alternative ways the information could be made available, for example by publishing a simplified investment policy.
See investment policy for published examples.
The Foundation Practice Rating criteria includes publication of the investment policy. The Foundation Practice Rating aims to improve the Diversity, Accountability, and Transparency of foundations.
Charities should consider which stakeholders, for example donors or service users, might want to access information about the charity's investments and ensure it is accessible to those audiences.
Charities registered in England or Wales must send an annual return to the Charity Commission or report their income and spending every year. What charities need to report will depend on their size. Larger charities must complete a full audit.
For charities which produce an annual report and accounts, these documents take significant time to produce and can provide helpful insights into the charity's work for a wide range of stakeholders, improving openness around the charity's investments. As the Charities Statement of Recommended Practice (SORP) notes: 'The charity’s report and accounts should not be viewed simply as a statutory requirement or a technical exercise. The report and accounts, when read together, should help users of the information to understand what the charity is set up to do, the resources available to it, how these resources have been used and what has been achieved as a result of its activities.'
Trustees/staff/committee members explore publishing more detailed information about the investment portfolio as part of a commitment to openness.
Charities are exploring a range of methods to increase openness about their investments, including:
- publishing a full list of all the underlying investments held by the charity (typically with a time lag to avoid commercial sensitivities)
- publishing voting records relating to the charity's ownership of different investments
Publishing underlying investments:
- University of Bristol - click on Portfolio Investment Report
- Access - The Foundation for Social Investment - click on Access Impact Report for Access’s Endowment
- Lankelly Chase Foundation
Publishing voting record:
- Friends Provident Foundation - 2022 Annual Report - shareholder engagement activity
Publishing information about the investment approach and professional providers (eg investment advisers or investment managers) used:
Publishing information about social and impact investments:
- Barking & Dagenham Giving Community Steering Group and Investment Policy
Sharing with peers
Trustees/staff/committee members explore opportunities to share and learn about investments with other organisations in the charity sector and those pursuing a purpose-led approach to investment.
A range of networks provide support to charities on investments, including:
Communicating with stakeholders
There is clarity about who the charity's key stakeholders are, and a plan for communicating with them about the charity's investments, including agreed processes and routes where needed.
Communicating with stakeholders might take the form of:
- tabling investment updates at the AGM or in a Q&A session with stakeholders.
- publishing (and signposting to) information on the charity's investments
Communication preparation may need to be proactive (for example updating stakeholders) and reactive (for example preparing for questions about the charity's investment approach or particular investments which pose a reputational risk).
For some charities, for example universities or well-known charities, processes and routes will be needed to ensure openness and accountability is achieved without over-burdening staff.
National Trust - click on Annual General Meeting
Openness and accountability
Publishing information about investments
The Trustees' annual report includes an explanation of:
- how the charity's investments have performed during the year
- what the charity's investment policy is, including any non-financial aims that you have for your charity’s investments
Smaller charities or charities with few or less complex investments do not need to include detailed information.
For smaller charities holding cash in a bank account, reporting on how the charity's investments have performed might include a statement to say the charity holds cash in a bank account and X% interest was received. Reporting what the charity’s investment policy is can include a short summary of the policy (see smaller charities that mainly invest cash). Non-financial aims might include methods to avoid conflicts with the charity’s purposes, reputational risks or social investments.
Both the Charity Commission and the Charities SORP would expect charities with larger investment portfolios to include more detailed information in the annual report.
In addition to any requirements under the Charities Statement of Recommended Practice (SORP) and the Charity Commission's reporting and accounting guidance, the following information is made available by publishing the charity's investment policy on its website and extracts from the investment policy in the charity's annual report:
- why the charity holds investments and how those investments support and further its purposes
- how the charity addresses any conflicts with its purposes and any reputational risks in relation to its investments
- governance structure relating to investments, and how trustees/committee members with investment oversight responsibilities are recruited
- the main external professional providers used by the charity for its investments (eg bank, investment manager, investment adviser)
- the charity's approach to social investments (if any are made)
Where the full investment policy isn't published on the charity's website, trustees/staff/committee members should explore the reasons for this and determine alternative ways the information could be made available, for example by publishing a simplified investment policy.
Information published by the charity about its investments should be provided in a way which is accessible to the charity's stakeholders where possible.
The Charities Statement of Recommended Practice (SORP) sets out how charities should prepare their accounts in accordance with the Financial Reporting Standard applicable in the UK. The Principles do not seek to set out all the requirements in the SORP and charity trustees/staff should consult the SORP when preparing accounts. SORP requirements include:
- reporting the financial performance of investments, investment management costs
- larger charities (income >£500k) to explain in the financial review 'where the charity holds material financial investments, the extent (if any) to which it takes social, environmental or ethical considerations into account in its investment policy.'
The SORP requires that 'The report must state to whom the trustees’ delegate day-to-day management of the charity and from whom trustees are taking advice. In particular...the names and addresses of any other relevant organisations or persons providing banking services or professional advice to the charity, including its...investment advisers'.
In practice, charities typically list their banking provider(s), investment manager(s) and investment adviser(s). Where an investment adviser is used, the adviser is typically listed but not the managers selected by the adviser.
For some charities the investment policy may contain granular detail inaccessible to a majority of stakeholders and publishing this would not help to increase openness and accountability. In these instances, charities could produce a version of the investment policy accessible to stakeholders to be made available. Charities in this position should also explore whether all trustees have a full understanding of the investment policy.
Where the full investment policy isn't published on the charity's website, trustees/staff/committee members should explore the reasons for this and determine alternative ways the information could be made available, for example by publishing a simplified investment policy.
See investment policy for published examples.
The Foundation Practice Rating criteria includes publication of the investment policy. The Foundation Practice Rating aims to improve the Diversity, Accountability, and Transparency of foundations.
Charities should consider which stakeholders, for example donors or service users, might want to access information about the charity's investments and ensure it is accessible to those audiences.
Charities registered in England or Wales must send an annual return to the Charity Commission or report their income and spending every year. What charities need to report will depend on their size. Larger charities must complete a full audit.
For charities which produce an annual report and accounts, these documents take significant time to produce and can provide helpful insights into the charity's work for a wide range of stakeholders, improving openness around the charity's investments. As the Charities Statement of Recommended Practice (SORP) notes: 'The charity’s report and accounts should not be viewed simply as a statutory requirement or a technical exercise. The report and accounts, when read together, should help users of the information to understand what the charity is set up to do, the resources available to it, how these resources have been used and what has been achieved as a result of its activities.'
Trustees/staff/committee members explore publishing more detailed information about the investment portfolio as part of a commitment to openness.
Charities are exploring a range of methods to increase openness about their investments, including:
- publishing a full list of all the underlying investments held by the charity (typically with a time lag to avoid commercial sensitivities)
- publishing voting records relating to the charity's ownership of different investments
Publishing underlying investments:
- University of Bristol - click on Portfolio Investment Report
- Access - The Foundation for Social Investment - click on Access Impact Report for Access’s Endowment
- Lankelly Chase Foundation
Publishing voting record:
- Friends Provident Foundation - 2022 Annual Report - shareholder engagement activity
Publishing information about the investment approach and professional providers (eg investment advisers or investment managers) used:
Publishing information about social and impact investments:
- Barking & Dagenham Giving Community Steering Group and Investment Policy
Sharing with peers
Trustees/staff/committee members explore opportunities to share and learn about investments with other organisations in the charity sector and those pursuing a purpose-led approach to investment.
A range of networks provide support to charities on investments, including:
Communicating with stakeholders
There is clarity about who the charity's key stakeholders are, and a plan for communicating with them about the charity's investments, including agreed processes and routes where needed.
Communicating with stakeholders might take the form of:
- tabling investment updates at the AGM or in a Q&A session with stakeholders.
- publishing (and signposting to) information on the charity's investments
Communication preparation may need to be proactive (for example updating stakeholders) and reactive (for example preparing for questions about the charity's investment approach or particular investments which pose a reputational risk).
For some charities, for example universities or well-known charities, processes and routes will be needed to ensure openness and accountability is achieved without over-burdening staff.
National Trust - click on Annual General Meeting
