Charity Investment Policy for Trustees

A charity investment policy sets out how trustees decide to invest the charity's funds, what they aim to achieve and what limits they place on those decisions. It turns investment from an informal habit into a documented framework that the whole trustee board has agreed and can stand behind.

Where a charity holds funds that are not needed for immediate spending, trustees have choices about how to put that money to work. The Charity Commission expects those choices to be deliberate, recorded and consistent with the charity's purposes rather than left to chance or to one individual.

The headline point is that an investment policy statement is the document that ties together your objectives, your appetite for risk and any ethical limits you want to apply. Without it, trustees can struggle to show that investment decisions were made properly and in the charity's interests.

The relevant Charity Commission guidance is its guidance on investing charity money (CC14), which sits within the wider Charity Commission guidance collection. This page explains what an investment policy should cover and how it connects to your reserves and risk frameworks.

Why the Commission expects an investment policy

As a matter of good practice, trustees should act in the charity's best interests and consider taking advice where appropriate. A written policy is how you record those decisions and demonstrate that you applied your judgement properly.

The annual return asks trustees about the policies the charity has in place, and good governance under the Charity Governance Code means having documented frameworks for significant financial decisions. Investment is firmly in that category for any charity holding investable funds.

A policy also protects individual trustees. When a decision is challenged, the policy and the minutes around it show that the board acted reasonably and within an agreed framework.

1. The investment policy statement

The investment policy statement is the core document. It records what the charity is trying to achieve through investment, how much risk the trustees are prepared to accept and over what time horizon the funds are expected to be invested.

A clear statement covers the objectives (for example income, capital growth or a balance of both), the level of risk the board considers acceptable and any liquidity needs. It also sets out who can make and authorise investment decisions and how performance will be reviewed.

The statement should record when the charity will take professional advice and from whom. Trustees remain responsible for the decision even where they rely on an adviser, so the policy should make the line of accountability explicit.

2. Financial and social investment

Charities can make financial investments, where the aim is a financial return that the charity then uses to further its purposes. The policy should set out the approach to these investments, including the balance between risk and return and any restrictions on the types of asset held.

Charities can also make social investments, where the aim is to further the charity's purposes directly as well as, or instead of, achieving a financial return. The policy should explain whether the charity uses social investment and how trustees weigh the mission benefit against the financial outcome.

Both routes are legitimate, but they call for different judgements. Recording which approach applies, and why, keeps the board's reasoning transparent and consistent.

3. Responsible and ethical investment

Trustees may adopt a responsible or ethical investment approach, provided it is consistent with the charity's purposes. This can mean avoiding investments that conflict with what the charity stands for, or favouring investments that support its aims.

The policy should set out any ethical exclusions or preferences the board has agreed and the reasoning behind them. Linking ethical choices back to the charity's purposes is what keeps them defensible.

An ethical stance is a board decision, not a personal preference of one trustee. Recording it in the policy means it survives changes in membership and applies consistently over time.

4. Linking investment to reserves and risk

Investment decisions do not sit in isolation. They depend on how much money the charity needs to keep available, which is the territory of the reserves policy, and on the risks the charity is willing to carry, which sits within risk management.

Trustees should make sure the funds they invest are genuinely surplus to short-term needs, so investment and reserves planning need to be read together. The investment policy should reference the reserves position rather than treating available cash as automatically investable.

Investment risk should also feature in the charity's risk register, so that the board reviews it alongside the other major risks it faces. This keeps investment within the charity's overall approach to risk rather than outside it.

Quick reference

Element	What it means in practice
Investment policy statement	Records objectives, risk appetite, time horizon and who decides.
Financial investment	Investing for a financial return the charity uses to further its purposes.
Social investment	Investing to further the charity's purposes directly, with or without a financial return.
Responsible or ethical approach	Exclusions or preferences agreed by the board and consistent with the charity's purposes.
Professional advice	When and from whom the charity takes advice, with the decision staying with trustees.
Review	How and how often performance and the policy itself are reviewed.

What trustees must do

1. Adopt a written investment policy statement that the whole board has agreed.
2. Define your objectives, risk appetite and time horizon clearly within it.
3. Decide whether the charity uses financial investment, social investment or both, and record why.
4. Set any responsible or ethical limits and link them back to the charity's purposes.
5. Check that invested funds are surplus to short-term needs by reading the policy alongside your reserves position.
6. Take professional advice where appropriate and record that you have done so.
7. Review performance and the policy regularly, and minute the decisions.

Common mistakes

• Investing surplus cash with no written policy behind the decisions.
• Treating all available cash as investable without checking the reserves position.
• Leaving investment decisions to one trustee rather than the whole board.
• Adopting an ethical stance that is not tied back to the charity's purposes.
• Relying on an adviser as if that removes the trustees' responsibility for the decision.
• Never reviewing the policy or the performance of the investments held.

How Policy Pros can help

We write bespoke charity investment policies that set out a clear investment policy statement, your approach to financial and social investment and any responsible or ethical limits, all consistent with your charitable purposes. You can see the full range through our charity policies and procedures service. It sits alongside the Commission's guidance on charity reserves (CC19). The wider standard for trustee decision-making is the Charity Governance Code.

Investment works best when it is read alongside your other financial frameworks. We can also help with your charity reserves policy so that invested funds are genuinely surplus, and your charity risk management policy so that investment risk is tracked with the other major risks the charity faces.

For the full picture of what the Commission expects, start with our charity policies and annual return guide, which maps each policy to its place in good governance.