If you do experience a setback, trustees should review the circumstances that lead to the loss, their risk appetite and how they identify and manage risk generally. They should also take the opportunity to learn from their experiences in order to benefit the charity in the future.
All charities can invest, and financial investments are a major source of funding for many. However, any kind of investment, whether financial or social, can inevitably expose charities to risks which can affect not just the charity itself but the public’s trust and confidence in the sector more widely. As a result, it’s important that charities invest in accordance with the law, and put in place plans to deal with any problems in the best way possible for their beneficiaries.
As always, the first avenue of protection to preventing things going wrong is to be prepared. As we say in our guidance on investment matters, setting investment objectives isn’t about avoiding risk, but if a risk does materialise and result in a loss to the charity, trustees will be protected if they have identified and considered how to manage that risk up front. Trustees should also record their overall investment policy and key decisions in writing to show that they have considered the relevant issues. Taking professional advice where appropriate will minimise the risk of things going wrong, as will diversifying your investment portfolio.
Having oversight over social investments is really no different to monitoring financial investments and it’s vital you are able to identify any potential losses or challenges early to minimise the negative impact on your charity. In fact, it’s now a legal requirement for trustees to review their charity’s social investments at regular intervals. Ask yourselves – why are we making them, how can we monitor their performance, how do they contribute/relate to our charity’s overall investment portfolio, and can we/how can we withdraw our funds if we need to?
But sometimes investments can and do go wrong. A loss might mean the loss of some, or all, of the amount invested, but it can also be about loss of reputation, perhaps through investing in or receiving investment from an unpopular or discredited company.
Unfortunately, the enterprise we tried to build using social investment was unsuccessful. I hope our experience will help other charities overcome similar challenges - Simon Bass, Praxis
If you do experience a setback, trustees should review the circumstances that lead to the loss, their risk appetite and how they identify and manage risk generally. They should also take the opportunity to learn from their experiences in order to benefit the charity in the future. We know that board members are often concerned about their personal liability when taking on investment. Our advice is that if trustees can demonstrate that they have discharged their duties and considered the relevant issues before reaching a decision, they are unlikely to be criticised for their decisions or for adopting a particular policy.
However, if you do find yourself in a situation where a significant asset or financial loss will affect your charity’s solvency and its ability to serve its beneficiaries, make sure you inform us under the serious reporting framework and remember that good governance and leadership is crucial in these situations. Trustee boards should have plans for an orderly wind up if the charity can no longer function effectively – this will mean recognising when that point is reached and considering the future welfare of beneficiaries.