Charities News SUMMER 2022
Welcome Welcome to the first edition of our AG charity newsletter! I started this following feedback from clients that our charity updates were brilliant, but could we do them more often or in a more accessible way, and so the charity newsletter was borne... There have been some significant developments in the charity sector in the last few months, particularly around investing and the Charity Commission itself, and you can see some more details on this within this newsletter. This is very much in its infancy and whilst we will be having guest contributors in future editions, this newsletter is focused on updates from me and my team. If you would like to see any particular topic covered, please let me know. Enjoy the edition
Michelle Ferris Partner, Head of Charities and Care, Albert Goodman
ARE THE CHARITY COMMISSION STARTING TO FLEX THEIR MUSCLES?! The Charity Commission have recently ordered the Islamic Research Foundation International (IRFL) to be wound up. This followed an investigation, started in 2020, which identified that the charity had been funding programmes that promoted hate speech and violence. The investigation was launched when it was identified that IRFL was funding Peace TV, which had repeatedly breached the Ofcom Broadcasting Code. The Charity Commission identified that between 2015-2020, £3.6m of charitable funds had been spent on funding the parent company which operated the licence for Peace TV. IRFL was intrinsically linked to Peace TV, even sharing a domain name and collecting donations through the Peace TV website. Peace TV’s licence was suspended by Ofcom in 2019 following upheld complaints that some broadcasts contained homophobic and antisemitic hate speech. IRFL continued to fund Peace TV after the suspension and failed to manage conflict of interests. Interestingly though, the Charity Commission only disqualified one of the trustees from acting shortly before the investigation launched, despite the fact that the then home secretary Theresa May excluded the same trustee from the UK in 2010 for “making statements that attempted to justify terrorist activity and foster hatred”. But back to IRFL, and the Commission installed an interim manager in 2020, who concluded that the charity was no longer viable and an order has now been made for it to be wound up. The Commission may need to consider further flexing of its muscles in relation to the Global Warming Policy Foundation (GWPF), following reports that the charity has been receiving funding from entities with fossil fuel interests. Extinction Rebellion have written a letter to the Charity Commission (co-signed by many MP’s, scientists and activists), accusing the GWPF of breaching the Charities Act 2011 and failing to act for the public benefit. As you can see in an article below, the incoming Chair of the Commission, Orlando Fraser, has spoken about his desire to lead an organisation that is fair, balanced and independent. He has also spoken about the need to strike the right balance between being robust and benign and so it will be interesting to see how this is reflected in the reaction to the issues raised around GWPF.
RESPONSIBLE INVESTING FOR CHARITIES by Calum Butt Calum Butt, consultant at Albert Goodman Chartered Financial Planners, summarises the Butler-Sloss court case and the implications for charities. The Charity Commission has offered guidance on investing for some time, based on a legal case from 1992 which set out that maximising financial return should always be the starting point for trustees considering the exercise of their investment powers. In recent times, this has come under scrutiny as charities seek to invest more in line with ethical or environmental principles. In Spring 2021, the Charity Commission launched a consultation on revisions to their guidance, which initially recommended that the guidance be updated to permit trustees to take into account other factors, such as impact on climate, employment practices, sustainability, human rights, community impact and board accountability when choosing investments. This was, however, overshadowed by a legal case due to be heard in court in “early 2022”, which has delayed final publication of the amended guidance... until now! On 29 April the High Court handed down its very eagerly awaited judgement on the case (entitled “Butler-Sloss v Charity Commission”), brought by two charities to challenge the existing Charity Commission guidance. The charities both had general charitable purposes, but focused on causes related to environmental protection or improvement and relief of those in need. They both had significant investment assets and had already taken an approach which focused on companies with better “green” credentials (akin to many ESG portfolios), but wished to take this a step further and were concerned that some of their existing investments were in contradiction with their purposes and actions. They were therefore seeking High Court approval to align their investment criteria with the 2016 Paris Climate Agreement. These proposed criteria would have excluded over half the publicly traded companies available, but it was noted that the targeted annual return for the portfolio was CPI + 5%, which was noted not being considerably out of line with standard rates of return. However the trustees agreed that they could not accurately establish the financial detriment that the charity may suffer as a result of adopting their approach over the more traditional approach. The High Court judge (Mr Justice Michael Green), went back to the 1992 case and concluded that this should not be taken as binding the trustees to not considering other factors past financial return. He said “where trustees are of the reasonable view that particular investments or classes of investments
potentially conflict with the charitable purposes, the trustees have a discretion as to whether to exclude such investments and they should exercise that discretion by reasonably balancing all relevant factors including, in particular, the likelihood and seriousness of the potential conflict and the likelihood and seriousness of any potential financial effect from the exclusion of such investments”. The Judge went onto conclude that if Trustees had balanced all the relevant risk factors and made proportionate and appropriate judgements, then the trustees would have met their legal requirements, even if other trustees or even the court may have not come to the same conclusion. He therefore concluded that the charities in question had “exercised their powers of investment properly and lawfully”. The implications for the sector are likely to be wide-ranging. It is now clear that trustees are perfectly able to decide to exclude investments that conflict with their charitable objectives – provided they have balanced this decision with the potential for financial detriment. There was, however, some caution in the Judge’s conclusion that moral obligations may not form part of this judgement, and care should be taken where the limitation is not prescribed by a charity’s objects and is instead based upon moral considerations. So what does this mean for the Charity Commission? Aarti Thakor, director of legal services at the Charity Commission commented after the case “We welcome this judgment and its confirmation of the law relating to ethical investments in charities. We are pleased that the judge found, in line with our proposed guidance, that trustees can continue to have wide discretion when choosing to invest ethically... The judge confirmed that the law relating to trustees’ powers of investment should be suitable for all types of charities, offer flexibility and sustainability, and ensure the furtherance of a charity’s charitable purposes. We will be publishing our updated guidance in due course to ensure trustees can confidently adopt appropriate policies including in the context of pressing concerns around climate change”. We are therefore expecting a final version of the guidance later this year which should hopefully provide further clarification.
If you’d like to discuss how your charity can invest with an ESG focus whilst still staying within the limits of investment powers, please get in touch with me, or Albert Goodman Financial Planners.
MANAGING CHARITY FINANCES by Eleanor Berry
It’s a common misconception that the responsibility of the charity finances sits with the treasurer. Even if your charity has an expert managing its finances, all trustees have equal responsibility to take steps to make sure that your charity’s money is safe, properly used and accounted for. Where charities have fallen short of managing their finances correctly, the Charity Commission will interrogate the charity’s internal financial controls and procedures. We therefore recommend that all charities undertake an annual review of internal financial controls to ensure money coming into the charity is secure and recorded, only spent on charitable purposes, and not at risk of theft, fraud or cyber-crime. The Charity Commission has a useful internal financial controls checklist to assist, and we can provide an independent review.
New Charity Commission chair not so much of a soft landing? The new chair of the Charity Commission, Orlando Fraser, has delivered his inaugural speech. Having been without a permanent chair since early 2020, and with the debacle surrounding Martin Thomas’ appointment (and subsequent resignation prior to taking up the post), there was increased scrutiny on Fraser’s appointment, which wasn’t aided by MP’s on the House of Commons Digital, Culture, Media and Sport Select Committee, rejecting him as the preferred candidate. Ultimately, despite the Committee’s concern that Fraser represented “yet another archetypal and unimaginative choice” (although I should note that they had no concerns about his ability to do the job or about him as an individual), the DCMS pushed through his appointment to the role, which is for 2 and a half days a week for a three year term, remunerated at £62,500 per year. Orlando Fraser is a barrister with almost 30 years experience and a strong prior commitment to the charity sector. He has involvement with the Charity Commission dating back to 2013 and served as a legal board member under William Shawcross’s chairmanship. In his inaugural speech, Fraser referred to his time as
a barrister and his desire to lead a regulator that is fair, balanced and independent. He set out his intention to make the Commission available and responsive to trustees, and encouraged trustees to consider how they manage their charity’s resources and how they recruit new trustees – noting that the cost of living crisis is likely to impact charities. In reference to his desire to be fair, balanced and independent, Fraser said that under his leadership, he intended the Commission to strike a balance between being robust and benign and to act independently “without fear or favour from any other entity, whether it be Government, party politicians, beneficiaries or indeed the sector”. He went on to say... “So, there will be occasions when the Commission will be very robust, but equally you will see a supportive side to us – it is a question of achieving the right overall balance over time between challenge and encouragement, and it is something to which I want the Commission to pay attention.”
We await to see to what extent Fraser will be able to influence the wider Commission and how this will play out in practice, but the comments seem to be more direct than many of his predecessors.
End note As we come to the end of the first of our charity newsletters, the situation for many across the UK looks bleak, and most front-line charities I speak to are expecting (or already seeing) a significant increase in demand for their services. However the ability of the sector to be agile and able to respond in a time of need has never been more obvious and I hold hope that the future direction of the Commission will aid in this agility whilst protecting the sector for all charities that do such a magnificent job. I end this edition with a reminder that we are holding another inaugural event this summer – our first Charity Finance Managers Group meeting (I need to come up with a better name for it!). Full details can be found below and please feel free to pass this to any colleagues who may find it of interest. I look forward to speaking with you all soon and if you have any topics that you would like covered either in our newsletter or at our events, please do let us know. Wishing you all a prosperous (and sunny!) summer
Michelle Ferris Head of Charities and Care, Albert Goodman
CHARITIES FINANCE MANAGERS’ GROUP THURSDAY 14TH JULY AT 3PM Being a finance manager in a charity can be an isolating experience. Our new group aims to bring together likeminded individuals in a safe forum where you can discuss anything that’s bothering you or to simply get ideas from others in the same position as you. Michelle will lead the topic of conversation for this first event, discussing the Finance Manager role and what this involves.
Michelle would love to have a greater understanding of the frustrations and challenges you are facing in your charity, so please do send your thoughts when you RSVP and these can be discussed at the meeting. Going forward, we hope that each event will have a speaker on a specific topic chosen by you. There will also be plenty of time for general discussion about anything that you would like another opinion on.
We are launching this event with a cream tea at the Albert Goodman offices on Thursday 14th July at 3.00pm. We really hope you can join us. Please RSVP to confirm your place and if there’s something you’d like to hear about, please let us know!
CONTRIBUTING TO YOUR SUCCESS If you would like to discuss any matters in this newsletter please get in touch with your usual Albert Goodman contact or Michelle Ferris direct.
michelle.ferris@albertgoodman.co.uk
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01823 286096
www.albertgoodman.co.uk
@AG_LLP
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