Charities and social investment: A research report for the Charity Commission

July 2013

Leila Baker, Niamh Goggin

research_report

This research into social investment was carried out by IVAR on behalf of the Charity Commission. It aimed to explore the regulatory risks, challenges and opportunities facing charities in this field and gain an insight into the likely development of the social investment market over the next five years.   We interviewed a range of charitable trusts and foundations as well as charities in receipt of social investment (investees) and spoke with representatives from a number of social investment intermediary organisations. Our research found that:  

• The major drivers for successful social investment by charities were a shared sense of mission, good governance, skilled management and strong relationships between investors and investees. The main barriers were concerns about financial risk and reputational damage.
• When it comes to making and receiving investment, some research participants were unaware of the charity law framework that applies to charities. Charity investees had several support needs such as independent advice, help with business planning, peer learning and access to simple and clear investment products.
• Some social investment intermediaries felt that charity investees were excessively risk-averse. However, the investees themselves felt this wariness ensured a responsible and risk-based approach.

  Our Head of Research, Leila Baker, summarises what our findings mean: ‘We learned that charities need three things: simple social investment products; neutral advice from organisations that are not market competitors; bespoke and financial support with business planning and preparing for investment. The charity sector (and others) could also benefit from enhanced communication and trust between charitable and non-charitable organisations engaged in social investment’.   The Charity Commission also published their analysis of the findings, highlighting some key regulatory issues:  

• Social investment needs to be clearly understood by trustees. It is vital that trustees are able to make informed decisions when embarking on a particular investment. Charities trustees must exercise financial prudence and explain their decisions.
• Charity trustees need to highlight the unique nature of charitable status. Trustees should make sure that the intermediaries and partners they work with are aware of their organisational status as a charity that exists for public benefit.
• Charities should collaborate and seek support. Informal peer learning, networking and independent advice will enable trustees to understand social investment and make informed decisions.

  Sam Younger, Chief Executive of the Charity Commission at the time, commented: ‘This research highlights the importance of strong governance and a clear mission when it comes to social investment. The Commission’s core role is to protect the public’s interest in the integrity of charity, so we applaud the fact that trustees are assessing financial risks – however, we don’t want trustees to miss opportunities to further help their beneficiaries by being overly cautious. Proper risk assessment, due diligence and good business planning make charities better placed to succeed in social investment’.

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(CSI a research report for the Charity Commission 2013)

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