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UK Introduces New Social Investment Power for Charities

2 August 2016 at 10:23 am
Lina Caneva
The UK Charity Commission has issued guidelines around a new law that gives statutory power to charities to make social investments.

Lina Caneva | 2 August 2016 at 10:23 am


UK Introduces New Social Investment Power for Charities
2 August 2016 at 10:23 am

The UK Charity Commission has issued guidelines around a new law that gives statutory power to charities to make social investments.

UK Coins pounds in jar RS

The commission published the guidance for trustees about the new social investment power as the first phase of the Charities (Protection and Social Investment) Act 2016 which came into force at the end of July 2016.

The UK Charity Commission said for the first time, social investment had been defined in legislation.

“It is defined as a ‘relevant act’ that is carried out ‘with a view to both directly furthering the charity’s purposes and achieving a financial return for the charity’. The guidance explores this definition to provide further advice on what is and is not a social investment,” the director of policy and communications at the Charity Commission Sarah Atkinson said.

“The new legislation does not alter or override trustees’ general common law duties, and the guidance makes clear that these duties apply to any decision regarding social investments.

“However, the legislation places specific duties on trustees who are considering making a social investment.”

Under the Charity Commission guidelines charity trustees must:

  • consider whether advice ought to be obtained
  • obtain and consider any such advice
  • satisfy themselves that it is in the interests of the charity to make the social investment.

Trustees must also review their charity’s social investments from time to time.

“The legislation does place further duties on trustees who are considering social investments but these are not intended to be onerous. This updated guidance should help trustees to make well-considered, prudent decisions in this developing area,” Atkinson said.

When introducing the new power in the House of Lords, Lord Bridges of Headley said the intention of the law was to “help charities to make social investments so that they can fulfil their mission in new and innovative ways” and that it would “give charities the confidence and certainty to invest in this growing sector”.

“Traditionally, charities with money to invest have either sought to maximise financial returns or made grants to further their charitable mission. Social investment is different because it involves investments that both further the charitable mission and expect to generate a financial return,” Lord Hadley said.

“At present, charities have over £60 billion (A$105 billion) of assets under management, but just £100 million (A$175 million) of those are in social investments. By clarifying the law and trustees’ duties, the bill aims to give charities the confidence and certainty to invest in this growing sector.”

A social or impact investment is any investment activity which has an expectation of both a social outcome and a financial return.

For Not for Profit organisations it represents a form of repayable finance that can be used for capital investment, revenue funding development, capacity building or other ways of improving their sustainability.

Social investment can take the form of secured loans, overdraft facilities or social impact bonds where investors put forward the capital and are repaid by the government based on the results or social impact made by the charity’s program.

In the UK loans are made by social investment finance intermediaries (SIFIs), who borrow capital from wholesale lenders like Big Society Capital and turn this into financial products for Not for Profit organisations.

In Australia, the Victorian Government announced in July its first social impact bonds that would focus on reducing disadvantage through drug and alcohol treatment programs and young people transitioning from out of home care.

The New South Wales Government was the first state to explore the model and recently announced its third social impact bond, focused on tackling prisoner recidivism, following the success of the Newpin and The Benevolent Society bonds.

Since the first social impact bond was launched in London in 2010, over 60 projects have commenced in 15 countries. More than 21 of them have already reported positive social outcomes and four projects have fully repaid investor capital.

Lina Caneva  |  Editor  |  @ProBonoNews

Lina Caneva has been a journalist for more than 35 years. She was the editor of Pro Bono Australia News from when it was founded in 2000 until 2018.

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