Charitable Trusts and Foundations as Socially-responsible Investors and as Social Investors

Most trusts and foundations exist on a traditional model of making mainstream investments and giving the income as grants. This is increasingly being seen as problematic, particularly when some of the mainstream investments are perceived to be in conflict with the grant making.

The response has been two-fold: to use screening on mainstream investments – known as socially responsible investments, and to make investments that simultaneously provide an economic return and directly generate social or environmental impact – known as social investments, or social impact investments.

Within the socially responsible investment space, there has been much interest recently in the Divest campaign and the Divest:Invest movements, which seek to get investors to divest from fossil fuels and invest into climate solutions. See here for more about Divest solutions.

Making social investments

Most charitable trusts are allowed to make social investments in some form. Occasionally, restrictions may be imposed by constitutional documents, e.g. a trust deed.

There are also technical questions around whether you have a permanent endowment – if you do, then you have a duty to invest the fund on the basis of maintaining a balance between capital growth and income return, although the Trusts (Capital and Income) Act 2013 makes it quite easy to shift to a total return approach.

In terms of internal capacity, many organisations find that they have a long-standing split between investment management and grantmaking. making successful social investments requires skills from both sides of that divide. You may find some external support useful, at least initially.

Should we make social investments?

From a utilitarian perspective, the right question to ask is whether you can achieve more, or different social impact, or the same amount but more efficiently.

There is also the philosophical question about the whole premise of social investments - many people see a moral conundrum in making a profit from the underprivileged - even if the profits are used to help them. (There are similar conundrums in making mainstream investments in companies whose business or business conduct we don't approve of.)

Ultimately, there is no clear answer here – it is very much up to an individual organization to establish a position.

How do we find social investments? How do we know if they are any good?

iforchange offers financial advice and matchmaking to help you find social investments that are appropriate for you, and to conduct due diligence on them to give you an independent view on the investment terms and the claimed social impact. We currently work with charitable trusts with combined assets of over £1bn, and have reviewed many social investment opportunities.

Services we offer

iforchange can help you throughout your journey to making social investments, with a tailored package of support that responds flexibly to the needs of your organisation.

• Social investment training – we run workshops, seminars, and facilitated planning groups for trustees and executives. These enable organisations to understand the social investment opportunity in general, and how it can apply to their organisation. With this understanding, you will be well-informed enough to decide if social investment is something you should seek.

• Becoming investment ready – evaluating social investments is not always straight-forward; you may some help in setting up appropriate policies/procedures, and then an external look at particular investment opportunities.

• Social impact – you need to be clear in what you want from potential investee – the trend is towards more quantitative data to support impact claims; we can explain the pros and cons of this approach.

• Understanding the financial investment – social investments are frequently bespoke, and there can be a lot of jargon and technical concepts that you may want help with.

• Working with lawyers – ultimately, social investment agreements are drawn up by lawyers. We have many years of experience in instructing lawyers with precision – meaning that their time is used efficiently and economically.

• Finding social investments – social investments are not advertised broadly – for some investors the problem can be finding the right opportunity to invest in. We can help you source investments we believe will suit your needs.

Please contact us for more details, or a no-obligation conversation.