Jonathan Brinsden
- Partner
- Charities & Not-for-Profit
Aligning capital with purpose: a practical guide for trustees
Trustees are increasingly grappling with how best to use their charity’s assets in a way that reflects its purpose. What was once seen as a niche or specialist issue has now moved firmly into the mainstream of governance. At the same time, many boards find themselves slowed down by a sense that the area is complex, jargon-heavy and difficult to navigate with confidence. With the right framing and a clear process, however, it is far more manageable than it first appears.
Moving beyond “What to avoid”
For many charities, the starting point has been to avoid certain types of investments. That remains relevant, but it is only one part of the picture. Trustees are now being asked a broader question: not just what should we avoid, but how do our investments sit alongside what we are trying to achieve as a charity?
This does not mean every investment needs to directly advance the mission. Rather, it means being able to explain, in clear terms, how the charity’s money is being used and why that is appropriate in light of its purposes. For some organisations this will involve modest adjustments. For others it may lead to more fundamental change. Both approaches are valid, provided they are properly thought through.
Accepting, and managing, trade-offs
A common concern is that aligning investments with purpose will come at the expense of financial returns. In practice, the position is more nuanced. Trustees are not expected to prioritise mission at all costs, nor to ignore it entirely.
What is expected is that trustees actively consider where tensions arise and make informed decisions. In some cases, that may mean accepting a degree of compromise. In others, it may not. The key is that decisions are deliberate, documented and capable of explanation. This is less about finding a perfect answer and more about demonstrating a sound decision-making process.
Start with the investment policy
If the topic feels overwhelming, the most effective place to focus is the investment policy. This is the document that sets out how the charity approaches investment and provides the framework for decisions.
A good investment policy should:
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- Explain how the charity’s purposes are taken into account.
- Set out any areas of concern or restriction.
- Give clear instructions to investment managers.
- establish how decisions will be reviewed over time
Many charities find that their existing policy has evolved piecemeal and no longer reflects how they actually think about these issues. A periodic reset, taking a step back and asking “what are we trying to achieve here?”, is often more effective than incremental amendments.
Bringing the right voices into the room
Investment decisions are often seen as the domain of a finance or investment committee. While that remains important, there is increasing value in involving a wider group.
Programme teams can provide insight into the charity’s work on the ground. Fundraising teams may have a view on donor expectations. In some cases, it may even be appropriate to hear from beneficiaries or partners. This does not mean expanding decision-making to an unmanageable degree, but it does mean recognising that investment decisions sit within the broader life of the organisation.
Asking better questions of advisers and managers
Trustees are not expected to become investment experts. However, they are expected to ask the right questions of those advising them. Rather than relying on broad assurances, it is helpful to probe a little further:
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- How are decisions about responsible investment actually made?
- What does engagement with companies look like in practice?
- How are difficult areas, such as controversial sectors, handled?
The aim is not to catch advisers out, but to build a clearer picture of how the charity’s expectations are being implemented.
Cutting through the language
One of the main barriers in this area is terminology. Phrases such as responsible investment, ESG and impact investing are widely used but not always clearly defined.
Trustees do not need to master every term. What matters is agreeing, at board level, what these concepts mean for the charity. For example:
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- What level of alignment are we aiming for?
- Are we seeking to avoid harm, to influence behaviour, or to achieve measurable impact?
Having a shared understanding makes it much easier to make consistent decisions.
Recognising new and emerging risks
Trustees are also operating in a changing environment. Issues such as climate change, environmental degradation and geopolitical instability are increasingly relevant to investment decisions.
These factors are not simply ethical considerations. They can affect financial performance and the long-term sustainability of investments. Trustees should therefore be comfortable asking how these risks are being considered and managed, without feeling the need to become specialists in the underlying detail.
From avoidance to influence
There is a growing recognition that charities are not limited to choosing where not to invest. They can also use their position as investors to influence behaviour.
This might involve supporting investment managers who actively engage with companies, or being part of wider initiatives that encourage better standards. While not every charity will take the same approach, it is helpful to understand that influence is an available tool.
A practical way forward
For trustees approaching this area, a structured but proportionate approach is often the most effective:
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- Revisit the investment policy with purpose in mind.
- Identify any areas of clear concern or uncertainty.
- Engage with advisers to understand how those issues are handled.
- Document decisions and the reasoning behind them.
- Keep the position under periodic review.
This is not about solving everything at once. It is about building confidence and clarity over time.
Conclusion
Aligning investments with purpose is no longer an optional extra. It is part of good governance. While the subject can appear complex, the underlying task is familiar: to make informed, balanced decisions in the best interests of the charity.
With a clear framework and a willingness to engage with the issues, trustees can move forward with confidence, ensuring that their charity’s assets are managed in a way that is both financially responsible and true to its purpose.
This article is for general information purposes only and does not constitute legal advice or a comprehensive statement of the law. Specific legal advice should always be sought in relation to individual circumstances.
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