https://charitycommission.blog.gov.uk/2020/01/15/how-do-charities-approach-investing-in-line-with-their-purpose-and-values-we-want-to-know-and-we-want-to-help/
Update (1 August 2023): Our refreshed investment guidance has been published. Read Investing charity money: guidance for trustees.
Due to the current COVID-19 pandemic which is affecting many charities, we have extended the deadline for responses to 30 April 2020. See the section 'We want to hear from you' for more information.
Charities are driven by a passion to make the world a better place in line with their purpose and values, so it is reasonable to assume that everything a charity does should reflect this. But, in the area of financial investments, some charities have historically – and understandably – focussed on making the best financial return, without taking into consideration all the potential unintended consequences of their investments.
Trustees have a duty to maximise the financial returns generated from the way in which they invest their charity’s assets, but the Commission also encourages them to consider whether their investments are consistent with their charity’s aims. As public expectations and attitudes evolve, there are welcome signals that charities are thinking about how to reconcile achieving good returns with responsible investments that align with the charity’s mission and purposes. Many in and around the sector are championing this way of thinking and leading the way, but as the regulator we want to understand what is holding others back, and give more charities the confidence to follow suit where possible.
There are two reasons for this. Firstly, there are clear indications of shifting public expectations, a changing public mood. People place increasing value on transparency, which research shows is a key driver of public trust in charities. And we are all – as donors, beneficiaries, tax-payers – increasingly interested not just in what a charity achieves, but how it behaves along the way. The number of charities that have responded to outcry from their supporters by taking purposeful financial decisions is evidence of this.
Secondly, it is increasingly prudent for trustees to consider the factors affecting the longer-term financial sustainability of their investments. And there is evidence to suggest that removing certain industries or companies from their investment portfolio doesn’t necessarily impact financial return. The report ‘Intentional Investing’, published by the Association of Charitable Foundations (ACF) in 2015, notes:
“Evidence even suggests that, in some cases, the pursuit of responsible business practices can be positive from a financial as well as a values perspective.”
The law is clear that charities can take ethical and other non-financial considerations into account when deciding how to invest their assets in a number of scenarios, such as where there is a conflict with the charity’s purposes; where the investments would hamper the charity’s work; or where there is no risk of significant financial detriment. The Commission’s guidance in this area is also permissive, and indeed we know of charities that already have responsible or ethical investment policies in place.
But we want to ensure that others are not shying away from this due to a lack of awareness or the area being seen as too difficult. We want to ensure charities are aware of what they can do in this area, to understand their options when it comes to investing responsibly, and if necessary, equip them with tools to help make thoughtfully considered decisions. In short, we want more trustees to feel empowered to take a fresh look at their financial investments and make informed decisions that are right for their charity.
That’s why we have established a programme of work to seek to understand the barriers trustees currently feel prevent them from investing responsibly and in line with their purposes.
What does the Commission mean when it refers to responsible investment?
Responsible investment, for us, means demonstrating that you have thought about your charity’s purpose as well as your investment duties when making investment decisions. What is of principal concern to supporters of a health charity will differ to that of a conservation charity, and so the balancing act will play out in different ways. Indeed, this is not solely about climate change – a range of social and other issues such as human rights records, or treatment of workforce, may need to be considered if a charity is to live its values.
Often there won’t be an easy answer. It will always be for trustees to decide what is right in their specific case, and what that means in practice will vary between different charities – what is ethical may not always be universally accepted.
We want to hear from you
Charities are independent. We will not be telling trustees what conclusions they should reach when deciding how to invest their charity’s assets. But we want to put this issue at the forefront of trustees’ minds and encourage and support them to ask the right questions.
We want to hear from charity trustees, charity investment managers, employees or anyone with an interest in this issue to share their thoughts. What are your experiences and current considerations around responsible investments? What do you think are the barriers to more widespread responsible investments and what more could be done to support trustees to invest in a way that reflects the charity’s purpose and values?
Extended deadline
Due to the current COVID-19 pandemic which is affecting many charities, the Commission will continue to accept and listen to responses from interested parties on this issue beyond the original published deadline of Tuesday 31 March 2020. We are committed to progressing this work as soon as is practicable and will begin work on reviewing those responses that have been submitted, however we recognise that charities are focused on other more pressing issues at this time.
The new deadline for responses is 30 April 2020. We will continue to keep this deadline under review - if you are intending to respond, please do get in touch to let us know by emailing policy@charitycommission.gov.uk
We want charity to thrive and inspire public trust, so the time is now for us all to start thinking more purposefully about how charities invest their funds.
As an expert in the field of charitable investments and responsible financial practices, it's evident that the landscape for how charities approach investing has been evolving. The Charity Commission's blog post, dated January 15, 2020, sheds light on the changing dynamics in the sector. This update is crucial for trustees and anyone involved in the financial aspects of charities, especially considering the refreshed investment guidance published on August 1, 2023.
The central theme revolves around the dual responsibility of charities: achieving financial returns while ensuring alignment with their mission and values. The post acknowledges that historically, some charities have prioritized financial gains without fully considering the potential unintended consequences of their investments. However, there's a noticeable shift towards responsible investments that resonate with a charity's mission and purposes.
The blog emphasizes the importance of trustees considering whether their investments are consistent with their charity's aims. It mentions the evolving public expectations and attitudes, highlighting the growing value placed on transparency as a key driver of public trust in charities. The post also touches on the changing public mood, where stakeholders are increasingly interested not only in what a charity achieves but also in how it behaves throughout its journey.
The evidence presented includes the mention of the report 'Intentional Investing' from the Association of Charitable Foundations (ACF) in 2015. This report suggests that pursuing responsible business practices can have positive financial outcomes, aligning with values as well. The legal aspect is also addressed, clarifying that charities can take ethical and non-financial considerations into account when deciding how to invest their assets in specific scenarios.
The Charity Commission's guidance is portrayed as permissive, with examples of charities already implementing responsible or ethical investment policies. The commission aims to dispel any lack of awareness or perceived difficulty in this area, encouraging trustees to explore their options and make informed decisions aligned with their charity's values.
The post outlines the commission's program of work to understand the barriers preventing trustees from investing responsibly. The definition of responsible investment is clarified as demonstrating a thoughtful consideration of the charity's purpose alongside investment duties. The blog acknowledges the diversity among charities, emphasizing that ethical decisions may not be universally accepted and will vary between different organizations.
The call to action invites charity trustees, investment managers, employees, and stakeholders to share their experiences, considerations, and thoughts on responsible investments. Due to the COVID-19 pandemic affecting many charities, the commission has extended the deadline for responses to April 30, 2020.
In conclusion, this blog post serves as a comprehensive overview of the evolving landscape of charitable investments, emphasizing the importance of responsible practices in alignment with a charity's purpose and values. It provides evidence, legal context, and a call to action for stakeholders to contribute to the ongoing dialogue.
