Social investment: What trustees need to consider

24 May 2017
Author: David Mears

Changes in charity law in 2016 gave charities the power to make social investments. This is a great opportunity for charities working in international development to use their funds in new and exciting ways to achieve their missions.

For example, charities may be able to provide guarantees to help draw in partner organisations and other stakeholders, to ensure innovative projects go ahead.

Your NGO may have previously undertaken a “mixed motive investment” or “programme-related investment”. Some of these activities may now meet the legal test of “social investment”.

What is social investment?

Under the new law, “social investment” can be:

  • a) a use of funds or property by a charity
  • b) taking on a commitment in relation to a liability of another person, which puts the charity’s funds/property at risk (for example a guarantee)

A social investment must be carried out with a view to both furthering the charity’s purposes and achieving a financial return for the charity. 


A “financial return” under (a) means the outcome is better for your charity in financial terms than using all the funds or property. Under (b), it means either the commitment is not called upon, or it is called upon but not all the money or property at risk is actually used.

Steps to take before making a social investment

Trustees’ general duties apply when considering possible social investments. So trustees should always act in the best interests of the charity, manage resources responsibly, review potential risks and benefits, monitor performance, and take decisions that would be seen as reasonable.

Some other important actions and considerations for trustees:

  • Decisions should be properly minuted.
  • You need to provide and prove public benefit.
  • If a proposed investment could give rise to excessive private benefits to others, the charity may not be able to invest.
  • Consider whether you need to change your charity’s purposes (with prior Charity Commission consent) and whether your legal structure is suitable.
  • Check that your organisation’s governing document does not prevent or limit use of the new power. There are a few exceptions in terms of type of charity and type of funds, where the new powers cannot be used.

About the author

David has over 20 years extensive  experience at Senior Legal Counsel and Partner level in the charity sector. At MDY Legal, David focuses on governance and commercial issues in the development and wider not-for-profit sectors.