On December 10 2014, exactly one year after BBC Panorama’s investigation of charity investment policies, charity leaders’ body ACEVO launched the report of its Commission on ethical and responsible investment.
The report, titled ‘Good with Money’, is a guide for charities on investing in line with their mission. It proposes that charities should have a ‘Responsibility to Reflect’ on their investments – where they are made and how they are managed. It also proposes that larger foundations should have a ‘Responsibility to Innovate’, to use their large size and capacity for risk to ‘err on the side of innovation’ with their investment policies.
Last year’s Panorama programme elicited a strong public response. In the wake of the programme ACEVO convened a taskforce of leading investment professionals chaired by former Chair of UKSIF Martin Clarke, to draw up a blueprint to help charities improve their investment policies, to assess the state of the sector, and to identify knowledge gaps and make recommendations.
The report proposes:
1. A Charity’s Investment Policy should be at the heart of its identity. Charity leaders and trustees should consider how investment strategy reflects the charity’s values, objects, long-term direction and campaigning areas. Charity investment policy, based on the charity’s values, should be devised through an organisation-wide conversation.
2. Charities must be Proactively Transparent about their investment policies – all charity trustees and charity leaders should be conscious of and able to speak about their charity’s investment policy, which should be made public and clearly articulated.
3. Charities must come together and forcefully advocate to reduce the barriers – legislative and economic – to enable their money to better match their mission
4. Charities should adopt a new ‘Responsibility to Reflect’ on the challenge posed by the development of the Responsible and Ethical Investment marketplace. The largest foundations have a further ‘Responsibility to Innovate,’ and take bolder moves to lead the sector to better investment practice.
The report endorses proposals to give charities an explicit power to make social investments and to make amendments to guidance around to tax to make social investments more attractive to charity trustees.
The report also contains a wealth of data and technical advice, including:
State of the market data. Charity reserves are used to generate an investment income of over £3.5 billion each year. On average, around 6% of charities’ annual income comes from their investment portfolios. 1,990 very large charities, with reserves of over £5 million, account for nearly £2 billion of charity investment income
Technical content. Ethical and responsible investment is a complex, jargon-laden territory. Responsible investment is used to safeguard the long term value of an organisation’s investments, for example by engaging with companies to change corporate behaviour or controlling for risky investments due to environment, social or governance issues. Ethical investing is about reflecting an organisation’s values in their investments, for example by refusing to invest in certain companies whose ethos is different to one’s own or by positively investing in causes that mean something to the organisation.
Polling data and research. The Commission conducted primary research and polling of ACEVO members – around 1500 charity and social enterprise leaders across the UK – and across the networks of each of the commission’s own members. It conducted more than 30 hours of hearings with practitioners from the investment and charity sectors. It co-commissioned a study with PwC of 35 major charities’ disclosures and undertook a comprehensive review of academic and practitioner literature.
Practical advice. Every charity is different, and will require a different approach befitting their own mission and financial context to ethical, responsible, or mainstream investment. One of the goals of the Commission was to help third sector organisations with this challenge. Its remit was to give practical advice on how to develop policies that may protect a charity from the reputational damage that can be caused by poorly-aligned investments – and where possible also to take the further step of identifying areas that enable charities to better align their money with their mission.