Do we need an investment policy, and what should it cover?

England and Wales: This page sets out the position in full. Scotland: the same underlying duty, reached by a different and currently shifting route — the regulator’s own published guidance describes a law that is not yet in force, which this page corrects; see below. Northern Ireland: the same duty and the same statutory structure as England and Wales, with no material difference, plus one genuinely local point on pooling investments with other charities — see below.

Does every charity need an investment policy?

No. A charity investment policy is only needed once reserves go beyond immediate working capital. An investment policy is the written standard the trustees adopt. A manager can be instructed against it, and a trustee held to it.

A charity with no more than it needs to pay this month’s bills can say so and move on. It does not need to draft a policy for its own sake.

The trustees’ investment duties are the same in England and Wales, Scotland and Northern Ireland. Scotland reaches them by a different route. OSCR’s own guidance there describes a law not yet in force.

This page is for trustees who have calculated their free reserves and written their reserves policy. They have found money beyond working capital.

For some charities that includes a permanent endowment. An endowment has to be invested, not held as cash, if it is to keep its value for future beneficiaries. How endowment differs from other funds is set out in restricted and designated funds.

What should a charity investment policy cover?

A written investment policy should cover six things:

• the charity’s investment objectives
• how much risk the trustees will accept
• the time horizon: how long the money is invested for
• any ethical or values-based limits on what it may hold
• who may act — the full board, a committee it delegates to, or an outside manager under instruction
• a stated benchmark to review actual performance against

Without a benchmark, the policy cannot be reviewed against anything. That is the common mistake this page warns about.

England and Wales: the general power, and the duty that comes with it

Trustees have a general power to make any kind of investment they could make if absolutely entitled to the trust assets themselves. That power comes with a standing duty, not a one-off box to tick.

Before using it, trustees must take into account how suitable the investment is for the trust. They must also take into account the need to diversify. The same duty applies each time they review the investments they hold.

They must also get and consider proper advice. It must come from someone they reasonably believe is qualified to give it by ability and practical experience. Trustees need not get that advice if they reasonably conclude it would be unnecessary or inappropriate. That is the only exception.

The power adds to whatever the governing document itself gives. But it is subject to any restriction or exclusion the governing document sets; check yours with map your governing document.

Scotland: which law governs trustee investment today?

The law in force is the Charities and Trustee Investment (Scotland) Act 2005, not the 2024 Act that OSCR’s guidance describes. The 2005 Act put a general power of investment, and a matching advice-and-suitability duty, into the Trusts (Scotland) Act 1921. That is the same pattern as England and Wales: a general power, standard criteria and an advice duty. Scotland gets there by amending an older Act.

A later Act, the Trusts and Succession (Scotland) Act 2024, would replace this with a broader power. For the first time, trustees could weigh non-financial, ethical factors when investing. The Act has been passed, but its investment rules are not yet in force. Only one narrow commencement order has been made under it, and that order does not cover them.

Yet OSCR’s own published guidance on investment describes the 2024 Act’s power as if it already governs trust investment in Scotland. On the evidence found in this page’s research, the guidance and the Act’s recorded status do not match. This page flags that for expert review. It does not pick a side.

Do not treat the 2024 Act as governing Scottish trustee investment powers today. A social investment or values-based approach will be easier to justify once its broader power comes into force. Until then, the 2005 Act still applies. Its duty covers financial suitability and the need to diversify.

A SORP module on total return investment exists for endowed charities. It is for those that want to invest for total return, not income alone. It states that it applies to England and Wales only. Do not assume it carries across.

Northern Ireland: the same duty, plus one local point

Northern Ireland’s investment law mirrors England and Wales section for section. It has the same general power and the same standard investment criteria. It has the same advice duty, with its one exception. And the power adds to what the governing document provides in the same way, subject to its limits.

The duty itself is no different. But one point is specific to Northern Ireland. A Northern Ireland charity may pool its investments with other charities through a common investment fund. It does so under the Charities Act (Northern Ireland) 1964, not the 2008 Act that might seem to have replaced it.

The 2008 Act’s relevant sections have never been brought into force. The Charity Commission for Northern Ireland publishes no guidance of its own on investment policy. That is a confirmed absence, not an unresearched gap.

Advice first, and a benchmark to review against

In all three jurisdictions the duty turns on the same point: proper advice, got and weighed before the power is used. This step’s cost estimate reflects that. Writing the policy is free. Investment advice is paid for separately. The “get help” verdict on this step is not a formality.

At the middle and upper SORP tiers, the current SORP also requires the trustees’ report to review investment performance against the investment objectives. That applies where material financial investments are held.

Social investment may be a material part of the charity’s activities. If so, the SORP requires the report to explain the social investment policies and how the investments contributed to the charity’s aims. A policy without a stated benchmark cannot be reviewed against anything. That is the gap behind the common mistake.

With the investment policy set, the next step is to decide and minute your borrowing position.

Common mistake: adopting a policy and never reviewing performance against it

The policy is treated as a paper to file, not a tool to manage the money with. At the middle and upper tiers, the SORP requires the trustees’ report to review investment performance where material financial investments are held. Where social investment is material, the SORP also requires the report to explain the policy and how those investments contributed to the charity’s aims.

Worked example

Saltmarsh Trust holds reserves it does not expect to need for several years. Its policy sets the time horizon and how far the value of the capital may rise and fall. It names any sectors it will not invest in because of the charity’s own values.

The policy delegates to an outside manager who acts under written instruction. And it sets a review cycle against a stated benchmark.

The result is a policy a manager can be instructed against and a trustee can be held to. It is not a general statement of good intentions.