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Foundations and charities in England and Wales could find it easier to make social investments after recommendations were published by the Law Commission.

The recommendations built on an earlier report into social investment by charities, which resulted in a new statutory power for charities to make social investments that was enacted in 2016.

The Law Commission – the statutory independent body that monitors the law in England and Wales – made two key recommendations with the potential to help increase social investment by charities.

It recommended that trustees be given a statutory power to borrow from their permanent endowment by allowing them to spend up to 25% of its value, as long as they recoup that expenditure within 20 years. This would enable charities to borrow from permanent endowments to make social investments. 

Secondly, it recommended that charities that have adopted a total return approach to investment in accordance with the Charities (Total Return) Regulations 2013 should be given the power to further relax the permanent endowment restrictions, allowing them to make social investments with a negative or uncertain financial return – which would not otherwise be permitted as investments.

This would in turn enable trustees to offset – within limits – any losses arising from social investments against gains elsewhere in the investment portfolio.

Elizabeth Jones, a partner at law firm Farrer & Co, said: “Assuming the UK government supports the recommendations and enacts the draft Charities Bill appended to the Law Commission’s report, the new powers are likely to further broaden the scope for charities to make social investment, particularly following the new powers available to most charities since 2016.” 

The UK government is due to respond to the recommendations within the next year.

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