Charity trustees have a lot on their plate. They are ultimately responsible for the difficult decisions a charity makes about which vulnerable person or other cause should receive support, they need significant expertise and experience to make those decisions and usually do so on limited resources.On top of this, charity trustees are increasingly being asked to make tough decisions about how a charity invests its pension, endowment or other funds. A recent survey found that 78% of the public think worse of a charity if it invests in funds contrary to its values (EIRIS Foundation, 2011). In the run up to National Ethical Investment Week (NEIW 2013) I spoke with a number of UK based Charities about their concerns when it comes down to deciding how to invest capital, this article seeks to address some of those concerns.
Easier said than doneFor a busy trustee, aligning a charity’s assets with its charitable mission can seem like another item on an already full agenda. Worse still, it involves entering the highly-complex and fraught world of investment. From property to private equity, impact investing to infrastructure, common investments to commodities – investment unfortunately remains an industry that is short on good factual information and long on jargon and strong opinions. So what are the real facts that trustees and charity managers need to consider if they want to invest in a more responsible or ethical way, or a way that more clearly aligns with their charitable mission? Firstly, trustees do need to consider professional advice from a suitably qualified individual. The Trustees Act of 2000 introduced a clear statutory obligation for all UK trustees (with the exception of trustees of very small organisations) that they must consult with an investment professional before making an investment. All too often this is the moment where the discussion around ethical, responsible or sustainable investment first flounders - as surprisingly few financial advisers are active in the area. The UK Ethical Investment Association, a membership body for ethical investment advisers which I chair, only has around 100 members from the 23,000 independent financial advisers registered in the UK. Secondly, the law requires charity’s trustees to be able to justify the adoption of an ethical or responsible investment policy based on one or all of three criteria laid out in the CC14 guidance from the Charity Commission. These three justifications are:
- If a particular investment conflicts with the aims of the charity; or
- If the charity might lose supporters or beneficiaries if it does not invest in this way; or
- If there is no significant financial detriment.