Sarah Atkinson from the Charity Commission offers guidance to trustees thinking about social investment.

Social investment, whether making it or receiving it, can be a way for charities to maximise their resources and the services they offer to their beneficiaries. It is one of a range of investment strategies that a charity might choose to achieve its aims. However, whether considering making or receiving a social investment, there are some decision making and governance issues which the charity trustees will need to address upfront.

Generally, trustees can ensure they are taking the right approach to decision making if they follow our guidelines set out in It’s your decision: charities and decision making. These include acting within their powers and only in the interests of the charity, avoiding putting themselves in a position where their duty to their charity conflicts with their personal interests or loyalty to any other person or body, and taking decisions collectively, ensuring all trustees have the opportunity to participate.

If the trustees of a charity are thinking about making a social investment, these general guidelines continue to apply, but the Charities Act also requires them to make more specific decisions similar to those they would make with any other investment of charity funds. For social investment, these are:

• To consider whether in the circumstances they need to take advice
• if they think it is necessary to do so, take it and consider it
• to satisfy themselves that it is in the interests of the charity to make the social investment by weighing up the benefit to the charity and its beneficiaries from both the financial return and how it will further the charity’s aims

Trustees might want to take advice on legal, financial, accounting or other aspects of the proposed investment. They are also required to review social investments from time to time, again like other investments they might make. Charity boards should decide when a social investment should be reviewed and consider whether they need to take advice in that review.

For a charity applying for a loan or other form of inward social investment, it is important that they can satisfy the investor that they are ‘investor ready’. This might mean that they have to rethink their governance structures or look again at their in-house skills. The key decisions to get right in this regard are:

• having a deliverable business plan – can you demonstrate to potential investors not just what the charity has already achieved but how it hopes to grow and improve in the future?
• reviewing financial modelling – do you have a financial model that appeals to potential investors rather than only grantmakers?
• assessing internal skills – does the charity have the necessary skills, and does it need to appoint trustees with special skills or specialist advisory committees?
• knowing the right potential investors to talk to and prepare for that talk – do you understand the language, approaches and needs of potential investors?

Collective decision-making on what activities the charity will undertake, what resources it will need, and how it will obtain and use them is one of the most important parts of the trustee role, and this is no different when it comes to receiving or making social investment.

Some decisions are simple and straightforward; others can be complex or far reaching in their consequences. When you and your co-trustees make decisions about your charity, the crucial point to remember is to do what you and your co-trustees (and no one else) decide will best enable the charity to carry out its purposes. This includes thinking about the long term as well as the short term, and perhaps most importantly, being sufficiently informed to challenge each other, which will ultimately allow you to make balanced and considered decisions that are right for your charity.

To hear direct from charity trustees about their experiences of social investment and their advice for others, visit GET INFORMED: Social investment for boards.

For more information about social investment including tools and resources to help you understand whether it's right for your organisation, visit Good Finance.