Social Investment
Certain research indicates that social and environmental impact is becoming more important across the UK economy. It has been suggested that one in three British consumers will pay more for products with a positive social or environmental outcome (Based on findings of Nielsen’s, Consumers who Care Survey 2013) and 60% of millennials (those born between 1980 and 2005) want to work for organisations with a social purpose (According to the recent survey of millennials by Deloitte, available at: www.deloitte.com/MillennialSurvey).
	There are around 180,000 regulated social sector organisations, such as charities, community interest companies and community benefit societies with a combined annual income greater than £39 billion and workforce of more than 800,000 people (NCVO Almanac 2012, Government estimates from BIS, Small Business Survey, 2010 and ONS, Blue Book, 2011). In addition, there are an estimated 180,000 enterprises delivering social outcomes that do not take a regulated social form. These enterprises employ 1.5 million people and turnover c. £120 billion per year.
	Growth in this field is being supported by a positive investment market worth around £3 billion in 2014. Whilst savings in ethical banks and credit unions rose by 29% to £1.86 billion in the last three years, the fastest growth was to be found in the smaller direct investment sector, which consists of community share issues, bonds issued by charities and bonds and equity in a small number of socially motivated public companies (Ethex positive investment report 2014).
	Registered charitable trusts and foundations have £60bn assets under management and many have social missions that are highly compatible with social investment. This suggests they have the potential to provide the sort of risk capital that can support growth in this field. But to date it is considered that regulatory uncertainty has been an inhibiting factor (only £0.1bn has been socially invested). A new power of social investment would seek to reduce this uncertainty, leading to a subsequent boost to investment (Association of Charitable Foundations Research Briefing: Charitable Trusts and Foundations' Engagement in Social Investment, 2013).
	In his 2012 statutory review of the Charities Act 2006, Lord Hodgson of Astley Abbotts recognised that the current law made it difficult for charities to engage in making social investments. This is because charities are unlikely to have an express power to make social investments, but must instead rely on a combination of their separate powers to spend and their powers to invest for financial returns. He recommended that charity trustees’ investment powers and duties be amended to made social investment easier for those charities that wish to undertake it.
	As a result of Lord Hodgson’s recommendation the Government asked the Law Commission for England and Wales to review the law, consult and make recommendations. The Law Commission published proposals for public consultation in April 2014. It proposed that charities should be given a new power to make social investments, along with associated duties when making or reviewing social investments.
	The proposals were well supported by charities and the wider social investment sector, and the Law Commission reported in September 2014 recommending legislation to create a new social investment power and duties for charities.
	The Act gives effect to recommendations of the Law Commission in its Recommendations Paper, Social Investment by Charities (September 2014) by:
introducing a power for charities to make social investments;
setting out the duties that must be complied with by charity trustees when making social investments, whether pursuant to the statutory power or otherwise; and
making consequential amendments to the Trustee Act 2000.
	The social investment provisions in the Act, and the notes on sections on the relevant provisions below, were originally prepared by the Law Commission. Before being introduced into the House of Lords, the provisions were amended by the Government to exclude charities established by legislation and by Royal Charter from the new social investment power and duties. Further amendments were made during the passage of the Act through the House of Lords to clarify the definition of social investment and trustees' duties when making social investments.