Charity investment policy

The rule: when a charity must have a written investment policy

The Charity Commission’s guidance Investing charity money: a guide for trustees (CC14), updated on 1 August 2023, says “All charities can make investments, and your powers to invest usually come from one or both of the following: your governing document; the law”. For a charitable trust the law includes the general power of investment in section 3 of the Trustee Act 2000: “a trustee may make any kind of investment that he could make if he were absolutely entitled to the assets of the trust.” Whatever the power, CC14 is clear about its purpose: “As trustees, your principal duty is to further your charity’s purposes. This means that you must make your investment decisions to further those purposes.”

CC14 sets out when the written policy is a legal requirement: “You must have a written investment policy if your governing document requires you to have one or if your charity: is structured as a trust, or an unincorporated association, and gives an investment manager powers to make investment decisions on your behalf”. The second limb comes from section 15 of the Trustee Act 2000, under which trustees may not authorise an agent to exercise their asset management functions unless they have prepared “a statement that gives guidance as to how the functions should be exercised (‘a policy statement’)”, and “The policy statement must be in or evidenced in writing.” In practice the document is often called an investment policy statement, or IPS, the name the trustees in the Butler-Sloss case used (section 03).

Charitable companies and charitable incorporated organisations (CIOs) are in a different position, but the practical answer is the same. CC14 says: “If your charity is a company, or other type of corporate charity, you are not legally required to have a written investment policy unless your governing document says that you must. However, the Commission expects all charities that invest to have a written policy. This can be a simple document if your amount for investment is small.”

Academy trusts have their own rule. Paragraph 2.23 of the Academy trust handbook 2026, effective from 1 October 2026, says the board “must: have an investment policy to manage and track its financial exposure, and ensure value for money”, take advice “as appropriate from a professional adviser”, ensure “exposure to investment products is tightly controlled so security of funds takes precedence over revenue maximisation”, and “review the trust’s investments and investment policy regularly”.

Cash is an investment too. CC14 says: “Your charity may keep money in a savings or deposit account. These arrangements count as investments.” A charity whose only investment is a deposit account at its bank therefore falls within the guidance, and CC14 gives it a short version of the policy (section 02).

The Trustee Act 2000 extends to England and Wales only. In Scotland the duties sit in section 4A of the Trusts (Scotland) Act 1921, inserted by the Charities and Trustee Investment (Scotland) Act 2005: a trustee must have regard to suitability and the need for diversification and “obtain and consider proper advice” before investing and when reviewing, unless they reasonably conclude it is unnecessary or inappropriate. Section 4A is still in force; the Trusts and Succession (Scotland) Act 2024 will replace it when its investment sections are brought into force. The Scottish Charity Regulator (OSCR) publishes its own guidance. Northern Ireland has the Trustee Act (Northern Ireland) 2001, with parallel sections on the power of investment, the standard investment criteria, advice and asset management. The rest of this guide follows England and Wales.

What a charity investment policy should include

CC14 starts with one requirement: “Your policy should include your charity’s purposes and plans and how your investments fit with these”. It then lists what the policy “may also include … depending on the size and complexity of your charity”:

• what, if anything, the governing document says about how the charity must invest;
• the charity’s investment objectives, “including any relevant reputational and other non-financial factors”;
• any sectors or organisations the trustees consider are in conflict with the charity’s purposes;
• the timeframe for investment – short, medium or long-term;
• how easily or often the charity needs access to its money;
• the charity’s attitude to risk;
• the approach, if any, to environmental, social and governance (ESG) factors and to engagement with the companies the charity invests in;
• how the trustees will monitor and review the investments, including key benchmarks;
• who the investment advisers and managers are, their responsibility and remit, and how the trustees will work with them.

On risk, CC14 asks trustees to “decide what level of risk you are willing to accept to achieve a particular level of return for your charity” and to be “satisfied that the overall level of risk you are taking is appropriate for your charity and its circumstances”. The financial risks it gives as examples include capital risk, market risk, sector risk, currency risk, ESG risk (“loss because of poor ESG practice by a company you have invested in”) and regulatory risk. A charity with permanent endowment can also adopt a “total return” approach to managing those investments, which belongs in the objectives if it does.

The policy has to reflect the principles CC14 applies to every investment decision – “act within your powers” and “make sure that you are sufficiently informed” – and its four specific duties: consider whether the investments are suitable and will meet the investment objectives, consider the need to diversify “to spread the risk”, take advice unless there is a good reason not to, and review the investments at appropriate intervals. For trusts and unincorporated associations the four specific duties are law: section 4 of the Trustee Act 2000 requires a trustee to “have regard to the standard investment criteria”, which are the suitability of the investment and “the need for diversification of investments of the trust, in so far as is appropriate to the circumstances of the trust”. CC14 says that for charitable companies and other corporate charities “these duties do not apply as legal requirements unless they are included in the charity’s governing document. However, the Commission expects all trustees to follow them.”

A charity that mainly invests cash can keep the policy short. CC14 tells it to “Write a simple investment policy”, which “should cover: where and how long your charity can deposit cash; the maximum amount your charity can deposit with one provider; your charity’s approach to deposits that are short, medium or long-term”. It adds that trustees should deposit money only “with a trustworthy provider”, find out what protection applies “if your bank or building society fails, whether in the UK or abroad”, and can use the FSCS Bank and savings protection checker “to see how much of your money is protected”. Charities can also pool cash with other charities in a Common Deposit Fund or a Charity Authorised Investment Fund. Where the cash is the charity’s reserves, the reserves policy sets how much must stay readily realisable.

Charity ethical investment policy: exclusions after Butler-Sloss

CC14 says the trustees’ investment approach “may involve one or more of the approaches from the following (non-exhaustive) list”: “aiming only for the best financial return you can achieve, within the level of risk that you have decided is acceptable”; alongside the financial return, “avoiding investments that conflict with your charity’s purposes”; and alongside the financial return, “using your shareholder vote, or other opportunities that come with your investment”.

The law behind the second approach is set out in CC14’s legal underpinning. In Butler-Sloss v Charity Commission [2022] Ch 371 the trustees of two unincorporated charitable trusts asked the High Court to approve investment policy statements “aiming to ensure that their investments were aligned with the goals of the Paris Agreement on climate change”, and the Commission says “Butler-Sloss is now the leading case in this area”. The test it takes from the judgment is a balancing one: where trustees reasonably consider that investments “potentially conflict with the charitable purposes, the trustees have a discretion as to whether to exclude such investments and they should exercise that discretion by reasonably balancing all relevant factors including, in particular, the likelihood and seriousness of the potential conflict and the likelihood and seriousness of any potential financial effect from the exclusion of such investments.”

Three further points from the summary matter when writing an ethical investment policy. Trustees “can take into account the risk of losing support from donors and damage to the reputation of the charity generally and in particular among its beneficiaries”. But they “need to be careful in relation to making decisions as to investments on purely moral grounds, recognising that among the charity’s supporters and beneficiaries there may be differing legitimate moral views on certain issues.” And if the balancing exercise is properly done and a reasonable and proportionate policy adopted, the trustees “cannot be criticised, even if the court or other trustees might have come to a different conclusion.” Butler-Sloss neither requires divestment nor lets trustees exclude what they please; it requires a reasoned decision. Although the case concerned unincorporated charities, the Commission considers “the same duties are likely to apply to charity trustees of all charities whatever their legal form”. The same balancing appears in decisions about donations, covered in the gift acceptance policy guide.

An ethical investment policy is not a social investment policy. CC14 says the Charities Act 2011 defines a social investment as one where trustees use money or property with a view to both “achieving their charity’s purposes directly through the investment” and “making a financial return”, and that social investments are covered separately “because specific trustee duties apply”. For an unincorporated charity, section 292C of the Charities Act 2011 replaces the duties in sections 4 and 5 of the Trustee Act 2000 for a social investment (sections 4(4) and 5(5) point to it) with its own: to consider whether advice ought to be obtained, to satisfy themselves the investment is in the charity’s interests, and to review social investments from time to time.

The Charity Governance Code (2025), a voluntary code rather than regulation, expects that “If applicable, the board sets an investment approach that focuses not only on the financial return but also on the charity’s purpose and values”. It lists “An ethical investment policy (where relevant)” as suggested evidence, and for large charities “An investment policy and framework that has also considered the Charity Investment Governance Principles”.

Investment advice, managers and the policy statement

Section 5 of the Trustee Act 2000 says that before exercising any power of investment a trustee “must (unless the exception applies) obtain and consider proper advice”, and must do the same when reviewing the investments. The exception is narrow: a trustee “need not obtain such advice if he reasonably concludes that in all the circumstances it is unnecessary or inappropriate to do so.” Proper advice is that of a person “reasonably believed by the trustee to be qualified to give it by his ability in and practical experience of financial and other matters relating to the proposed investment.” CC14 expects every charity to take advice from someone experienced in investment matters “unless you have a good reason for not doing this. For example, if you have enough expertise in your trustee group or you have limited or low value investments”, and adds: “Keep a record of your reasons if you decide not to take external professional advice.”

Advice and delegation are different forms of investment management. CC14 describes advisory management, where a manager gives “advice about planning and managing” the charity’s investments, and discretionary management, where the manager has “some powers to make investment decisions on your behalf”. Trustees “can delegate some decisions about investments to others. … But the overall responsibility remains yours.” The policy stays with the board: “Your investment manager should not prepare your investment policy. That is your role as trustees.” Under section 15 of the Trustee Act 2000 the agreement with a discretionary manager must include a term that the manager will secure compliance with the policy statement, and the trustees “must formulate any guidance given in the policy statement with a view to ensuring that the functions will be exercised in the best interests of the trust.”

CC14 also says the contract with a discretionary investment manager “must not, unless it is reasonably necessary:”

• allow the manager to appoint a substitute;
• reduce the investment manager’s normal duty of care or place a cap on their liability for breach of contract;
• allow the manager to act in situations that might lead to a conflict of interest.

A company or CIO can hold investments in its own name; trusts and other unincorporated charities hold them in the trustees’ names, and CC14 says for them “it can save costs and be more convenient to appoint a nominee or custodian to hold investments”, though any type of charity can do so. Pooled funds, including those only charities can use, are another way “to access professional management of your charity’s investments”. Whatever the arrangement, the remit given to each adviser, manager and custodian belongs in the policy.

Reviewing investments, and what the annual report must say

Section 4(2) of the Trustee Act 2000 says a trustee “must from time to time review the investments of the trust and consider whether, having regard to the standard investment criteria, they should be varied.” CC14 says: “You should review your charity’s investments on a regular basis, and you may need to hold a review if other events happen such as if: your investments underperform against your targets; there is a change in economic outlook; your charity’s financial position or priorities change significantly”. For the policy itself: “Review your policy regularly and discuss it with new trustees.”

The record of those reviews is the trustees’ protection. CC14 says “You should keep a record of your investment decisions and how you reached them”, and that the Commission “is unlikely to have concerns about your investment decisions or policy if you can show that you have: complied with your trustee duties and your governing document; considered and balanced relevant factors; taken advice, unless you have a good reason not to; reached a reasonable decision”. Each of those four is shown by a record made at the time, not reconstructed later.

Reporting depends on size. Regulation 40 of the Charities (Accounts and Reports) Regulations 2008 requires the trustees’ annual report to include “a statement regarding the performance during the financial year of the investments belonging to the charity (if any)” and, “where material investments are owned by a charity, a description of the policies (if any) which have been adopted by the charity trustees for the selection, retention and realisation of investments for the charity including the extent (if any) to which social, environmental or ethical considerations are taken into account”. Regulation 40(7) says those items “do not apply to a charity which is not an auditable charity.”

An auditable charity is one whose accounts must be audited by law, and the line moved in 2026. For financial years ending on or after 30 September 2026, section 144 of the Charities Act 2011, as amended by the Charities Acts 1992 and 2011 (Substitution of Sums) Order 2026, requires an audit where gross income exceeds £1.5 million, or exceeds £500,000 with assets over £5 million (the audit threshold guide has the detail). A charity with income between £1 million and £1.5 million that used to give the regulation 40 statement no longer has to for those years, unless its assets take it over the £5 million line. For a charity below the audit line this is guidance rather than regulation, but CC14 tells every registered charity: “Your annual report must include an explanation of: how your charity’s investments have performed during the year; what your investment policy is, including any non-financial aims that you have for your charity’s investments”, adding that “Smaller charities or charities with few or less complex investments do not need to include detailed information.” The trustees’ annual report guide covers the rest of the report.

The fund switch agreed in a message thread

Investment policies are adopted at board meetings, but investment decisions rarely wait for one. Markets fall sharply in the week after the finance committee meets, and the discretionary manager emails the treasurer: the bond fund in the managed portfolio, held for next year’s building work, has dropped outside the risk range in the policy, and do the trustees want to move it to cash? The treasurer forwards the email to the chair in a private chat: “Manager suggests cash until March – OK with you?” The chair replies “Yes, go ahead” from a station platform. A month later another trustee asks in the trustees’ group chat whether a new holding conflicts with the charity’s purposes, and four replies later the group agrees to ask the manager to sell it.

Both are exactly the decisions CC14 is about. The first is a departure from the policy on a manager’s advice; the second is a Butler-Sloss balancing exercise, and the judgment protects trustees whose balancing was “properly done”. When the auditor, the Commission or a new treasurer asks why the charity sold, what advice it had and which factors the trustees weighed, the only record of the reasoning is a thread on two or three personal phones. The trustees who took part may have stood down, and the thread may no longer exist.

The question for the next board meeting is a precise one: for each investment decision since the policy was last reviewed, including any decision not to take advice, can the board show when it was made, who agreed it, what advice was in front of them and which factors they balanced?

Questions people ask

Can a charity make investments?

Yes: the Charity Commission’s CC14 says “All charities can make investments”, with the power usually coming from the governing document, the law, or both. Trustees must make investment decisions to further the charity’s purposes, and money kept in a savings or deposit account counts as an investment.

What is an investment policy for a nonprofit?

For a charity in England and Wales, an investment policy is the trustees’ written statement of how the charity’s money is to be invested: its purposes and how the investments fit them, its objectives, timeframe, need for access to cash, attitude to risk and any investments excluded because they conflict with its purposes. It is a legal requirement where a trust or unincorporated charity gives an investment manager discretionary powers (Trustee Act 2000 section 15) or the governing document requires one, and the Charity Commission expects every charity that invests to have one.

What should an IPS include?

A charity’s investment policy statement should include its purposes and plans and how its investments fit with them, CC14 says, and may also cover the governing document’s investment rules, objectives including non-financial factors, excluded sectors, timeframe, access to cash, attitude to risk, ESG and engagement, monitoring and benchmarks, and the advisers’ and managers’ remit. Where a discretionary manager is appointed, section 15 of the Trustee Act 2000 requires the statement to give guidance on how the manager’s functions are to be exercised in the charity’s best interests.

What is an example of an investment policy statement?

The simplest is the outline CC14 gives for a charity that mainly invests cash, which covers where and for how long cash can be deposited, the maximum with any one provider, and the approach to short, medium and long-term deposits. The template in section 02 of this guide shows the fuller structure, heading by heading, built on CC14’s list; it is illustrative and needs the charity’s own figures and reasons.

Can a charity refuse to invest in fossil fuels or other sectors?

Yes, if the trustees reasonably balance the likelihood and seriousness of a conflict with the charity’s purposes against the likely financial effect of excluding the investment, as the High Court set out in Butler-Sloss v Charity Commission [2022]. Trustees can take account of the risk of losing donors’ support or damage to the charity’s reputation, but should be careful about decisions made “on purely moral grounds”.

Do charity trustees have to take investment advice?

Trustees of a trust must obtain and consider proper advice before investing and when reviewing investments, unless they reasonably conclude it is unnecessary or inappropriate (Trustee Act 2000 section 5). The Charity Commission expects all trustees to follow the same approach, accepts good reasons not to – such as enough expertise among the trustees or limited, low value investments – and asks them to record the reasons.

Official guidance and your next step

The primary source is the Charity Commission’s Investing charity money: a guide for trustees (CC14) and its legal underpinning, both dated 1 August 2023; earlier versions of the guide, titled Charities and investment matters, are superseded, though the legal underpinning keeps that title. The statute is in sections 3, 4, 5 and 15 of the Trustee Act 2000, and the reporting rule in regulation 40 of the 2008 Regulations. Academy trusts should read paragraph 2.23 of the Academy trust handbook 2026. Charities in Scotland and Northern Ireland should read their own legislation and regulator’s guidance. Quotations are from those pages as published on 30 October 2026.

This guide is a summary for England and Wales, not legal or financial advice, and it recommends no investment, fund or manager. Choosing investments is a matter for the trustees and their properly qualified advisers.

Then do one thing: put the charity’s current investment policy beside CC14’s list, or, if there is no policy, write down where the money is held today. If the charity is a trust that uses a discretionary manager, check the agreement contains the section 15 term. Any gap is the first item for the finance committee.