Commentary on provisions of Act Section 15: Power to make social investments Section 292A: Meaning of "social investment"
Section 292A defines "social investment" for the purposes of Part 14A. Subsection (2) defines a social investment by reference to the objectives that are sought to be achieved by entering into the transaction. A relevant act of a charity is a social investment if it is done with a view to both (a) directly furthering the charity’s purposes and (b) achieving a financial return for the charity.
	Traditionally, charities have either applied their funds in direct furtherance of their purposes (for example by making grants to beneficiaries) or invested their funds to yield a financial return which can then be applied in direct furtherance of the charity’s purposes (for example by purchasing government bonds). A social investment is an act done with the objective of achieving both of these outcomes.
	Any valid act done by a charity (or its charity trustees) can be said in one sense to be done in furtherance of the charity’s purposes; the powers of the charity cannot be exercised for any other purpose. The requirement in subsection (2)(a) that an act must be done with a view to "directly" furthering the charity’s purposes means that there must be a sufficiently close causal connection between the act done and the charitable good achieved that fits within its express purposes. The purchase by a charity of government bonds with the sole objective of providing an income for the charity would not directly further the purposes of the charity within subsection (2)(a) since the investment has little proximity to the charitable good achieved by spending the income. By contrast, the purchase of shares in a medical research company by a charity for the advancement of medicine could directly further the purposes of the charity because it brings about a charitable good in the form of the work of the company.
	The word "directly" should not be read as excluding the possibility of the achievement of the charity’s purposes in effect being done by a third party, as in the example above.
	Examples of acts that might constitute social investments include:
a charity for the support of homeless people lets out housing at a low rent;
an overseas development charity invests in a fair trade tea production enterprise that is expected to yield a low financial return;
a charity for the advancement of medicine makes a high-risk investment in a medical research company which is in the early stages of developing a potential new treatment; and
a diabetes charity invests in a company that is developing foods intended to reduce the impact of diabetes on sufferers and which will be available to the general public;
a charity for the reduction of reoffending invests in a social impact bond to fund a project which provides support to individuals leaving prison.
	An act of the charity is, in the case of an unincorporated charity, an act of the charity trustees (subsection (3)) since an unincorporated charity has no legal personality.
	A relevant act of a charity is defined by subsection (4). An application or use of funds or other property (subsection (4)(a)) includes purchasing an asset such as land or shares, advancing money by way of loan and granting permission to use or occupy land (for example by lease or by licence). Taking on a commitment in relation to the liability of another person (subsection (4)(b)) includes guaranteeing the liability of another person and providing security for such a liability.
	A charity may wish to make a social investment out of funds or other property held on special trust. Property held on special trust is property which is held and administered for any special purposes of the charity on separate trusts relating only to that property: Charities Act 2011, section 287(1). The reference to the charity’s purposes in subsection (2)(a) is, in the case of a social investment out of funds or other property held on special trust, to the special purposes of the special trust.
	Subsection (5) makes clear that a relevant act may qualify as a social investment even where funds or other property are not applied or used with a view to generating a financial profit (whether in the form of income or capital growth). From a financial perspective, a social investment may be neutral (for example, an interest-free loan or a rent-free lease) or even loss-making (for example, if only part of the initial outlay is recovered). But an application or use of funds that is expected to result in a total loss of those funds is not a social investment. So a social investment (a) may increase in value and/or yield an income, (b) may be financially neutral, or (c) may decrease in value.
	A guarantee or other commitment can qualify as a social investment. Subsection (6) provides that such a guarantee or commitment will be made with a view to a financial return (under subsection (2)(b)) where the charity trustees expect that it will not be called upon in full or at all.
	Charities can make social investments in a wide range of enterprises without necessarily having to restrict the use of the funds specifically to the charity's purposes; subsection (7) makes clear that a social investment need not exclusively further the charity's purposes. A social investment might give rise to other outcomes that are not part of the charity's mission. But any such outcomes cannot be part of the trustees' motivation for making the social investment; section 292C(2)(c) provides that the relevant considerations in deciding whether a social investment is suitable are (a) the expected direct furtherance of the charity's purposes and (b) the expected financial return. Taking the example in paragraph [80(d)] above, the company's activities do not exclusively further the charity's purposes because the food will be available to the general public; it may nevertheless be an appropriate social investment based on the trustees' assessment of the expected direct furtherance of the charity's purposes and the expected financial return.
	A social investment might also amount to an investment for other purposes (such as under the Trustee Act 2000, accounting rules or the charity's governing document), but subsection (8) makes clear that a transaction can be a social investment without also being an investment for such other purposes.