Charity leaders should make sure they have a shared understanding of how their investments either further or conflict with charitable purposes, new guidance says.

The Charity Finance Group has today jointly launched a new list of principles aimed at bringing charity leaders greater clarity and confidence when making decisions about investments.

The Charity Investment Governance Principles, which are voluntary, have been developed to reflect the outcomes of the Butler-Sloss case, also complementing the Charity Commission’s CC14 guidance and the Charity Governance Code.

The principles cover purpose, leadership, integrity, decision-making, risk and control, effectiveness, equity, diversity and inclusion, and openness and accountability.

For integrity, the principles state a charity’s purposes should be placed at the forefront of investment decision-making.

“All of a charity’s activities, including making investments, are carried out to support and further the charity’s purposes,” the principles say.

“A shared understanding is therefore needed among trustees, staff and committee members of the charity’s purposes, how investments further or conflict with those purposes, and reputational risks and conflicts of interest relating to the investments.”

The guidance also urges charities to ensure they work to tackle a lack of diversity in investment practice and that they are open and accountable about the investments they make.

The principles are set out on a dedicated website which was produced after a year-long project led by a steering group comprising CFG, National Council for Voluntary Organisations, the Wales Council for Voluntary Action, the Association of Charitable Foundations and the secretariat of the Charities Responsible Investment Network.

Expert advisers from across the sector also contributed to the steering group and the Charity Commission was an observer to the project.

Caron Bradshaw, chief executive of CFG, said the guidance would help trustees gain confidence in making investment decisions.

“This is an entirely new resource developed both for and by the charity sector,” she said.

“With these new principles, charity trustees will feel more confident when making decisions about their organisation’s investments.”

Luke Fletcher, partner at the law firm Bates Wells and who was part of the advisory group, said the launch of the new principles was a “significant development” for charity investors. 

“The Butler-Sloss judgment provided legal clarity and a sure footing on which to build best practice principles for investment by charities - and now we have them, developed by charities for charities,” he said. 

“The principles will support trustees to invest well and generate good returns, while responding to some of the key challenges of our time, such as climate change.”