A guide to writing your charity's responsible investment policy

Step 1: Understand the charity commission's framework

Before drafting any responsible investment policy, trustees benefit from familiarising themselves with the Charity Commission's guidance on investment matters, known as CC14. This document sets out the legal and good practice framework that governs how charities may invest their funds. Understanding this foundation is essential, as it establishes the parameters within which trustees operate and the duties they must fulfil.

CC14 outlines three distinct approaches that trustees may take when making financial investments. The first focuses purely on achieving the best financial return within an acceptable level of risk. The second involves avoiding companies whose activities conflict with the charity's purposes, reduce support, harm reputation, or demonstrate poor Environmental, Social and Governance (ESG) practices. The third approach centres on shareholder activism, where trustees use their shareholding votes and influence to shape management practices at companies in which the charity invests. Trustees may adopt one or more of these approaches depending on their charity's circumstances and objectives.

Step 2: Define your objectives for the policy

Once trustees understand the regulatory framework, the next stage involves clarifying what the charity seeks to achieve through responsible investing. This requires trustees to articulate what they consider ethical in the context of their charity's aims and objectives. The process often involves asking fundamental questions about motivation and purpose. These can include why the charity wants to invest ethically and what message it wishes to convey through its investment approach.

Linking mission to investments can prove complex. Trustees might consider whether social investment could play a role, allowing the charity to achieve its purposes directly through investments that still generate financial returns. Social investments can take various forms, including loans, guarantees, or equity stakes in private companies. Each charity's circumstances will determine which approach or combination of approaches proves most appropriate.

Step 3: Draft an initial outline of the policy

With objectives established, trustees can begin developing an outline of the responsible investment policy. This process typically requires time and careful deliberation, as each charity's policy will differ based on its unique aims and the investment approaches it chooses to adopt. The structure of the policy will naturally flow from these foundational decisions.

Trustees benefit from recognising that supporters and beneficiaries may hold differing legitimate moral views on certain issues. This awareness helps ensure the policy reflects considered judgment rather than the personal preferences of individual trustees. The outline stage allows trustees to test different framings and approaches before committing to a final version, ensuring the policy aligns with both the charity's purposes and the diverse perspectives within its community.

Step 4: Assess the impact on existing and future investments

Before finalising the policy, trustees need to evaluate how its implementation might affect the charity's investment portfolio. This involves considering both potential positive outcomes and any constraints or challenges the policy might create. Charities operate in an increasingly accountable environment, making it important to determine whether the policy applies to direct investments only or extends to indirect holdings.

At this stage, engaging with professional advisers often proves valuable, particularly where the charity holds existing investments. An investment manager can help assess whether the proposed policy can be accommodated within current arrangements or whether changes to the portfolio will be necessary. Understanding the practical and financial implications of the policy enables trustees to make informed decisions about how to proceed.

Step 5: Communicate, agree definitions and document the policy

Implementation begins with clear communication between trustees and the charity's investment manager. Both parties benefit from agreeing on the specific definitions and parameters that underpin the policy, ensuring shared understanding and reducing the risk of misinterpretation. Clarity at this stage proves essential for effective execution.

Once agreement has been reached, trustees document the policy in writing. The written policy sets out both the aims the charity seeks to achieve through responsible investing and any specific exclusions or criteria that will guide investment decisions. This documentation demonstrates that the policy has been carefully considered and provides a reference point for future decision-making and accountability.

Step 6: Monitor, review and refine over time

A responsible investment policy should not remain static. Regular monitoring allows trustees to assess whether the policy achieves its intended objectives and whether any adjustments prove necessary. Review periods might be annual or aligned with the charity's broader governance cycle, depending on the complexity of the investment portfolio and the pace of change in relevant sectors.

Starting with a focused, manageable policy often proves more effective than attempting to address every possible consideration immediately. Trustees can refine and expand the policy over time as they gain experience and as the charity's circumstances evolve.

At W1M, our team of specialist advisers has a deep expertise in assisting charities with their investment aims. If you would like to discuss your responsible investment policy with one of our team, you can contact us here.