Charities and ethical investment
seem to be natural bedfellows.
What better way for an
organisation created to help people
than to invest its money ethically?
But
what is ethical investment? One standard
definition is “an investment strategy which
combines the intentions to maximize both
financial return and social good”.
Simplified
this can mean avoiding investing in
certain types of stocks. And here is
the rub, an ethical issue that concerns
one particular charity, may well be
acceptable to another, resulting in
ethical investment meaning different
things to different charities.
Alan Kirkham, director of IFAs investing
ethically, admits: “There is no such thing
as ethical investment. What charities can
do is ethically screen what they do not
invest in, but the trustees then have to
justify why they are screening that.”
Indeed, the Charity Commission has
firm guidelines on ethical investment
as part of its CC14 ruling. It notes the
following: “If trustees are to adopt an
ethical investment policy, or follow one
laid down in the charity’s governing
document, they need to keep in mind
their duty to invest in a way that furthers
the purpose of the charity.
“This will normally be achieved by
seeking the maximum return from a set of
investments which have been selected
prudently. An ethical investment policy
can be entirely consistent with this duty,
but there can also be a risk that the
exclusion from consideration, or
preference, of certain investment classes
or particular investments, may detract
from the objective of obtaining the best
direct financial returns from investment.”
So charities cannot embark upon an
ethically investment approach for its own
sake. “If you can justify it, that is fine, if
not, the Charity Commission will get quite
cross,” sums up Kirkham.
Negative ethics
But a worrying factor is that sometimes
trustees are not always up to speed on
what they are investing in. “We had an
anti-animal testing charity who was
investing in an animal testing laboratory
and an alcohol advisory charity that was
investing in a brewery, they [trustees]
just didn’t always understand what
the companies they invested in did,”
says Kirkham.
But Malcolm Hayday, CEO of Charity
Bank, says there is a difference between
ethical investments and SRI. “Ethical is
often seen as negative, as it puts one
ethical approach against another, I think
SRI is a better as it focuses on the
positive.” Charles Mesquita marketing
director at Rensburg Sheppards
Investment Management agrees. He says:
“I think a distinction needs to be made.
Ethical does assume negative exclusion
where SRI represents a committed
engagement.”
Ethical donations
From a donation perspective there is
pressure on charities to be ethical.
According to research from the EIRIS
Foundation, the majority of the general
public (83%) would be less likely, or even
unwilling, to give to a charity if they found
out it was not investing ethically.
This puts
the issue into sharper focus.
Furthermore, almost all (91%) of those
surveyed agreed that charities should be
investing their money in an ethically or
socially responsible way. This highlights a
mis-match between public expectations
and the number of charities actually
investing ethically – a 2006 study by
ACCA found that just 55% of large UK
charities had an ethical investment policy.
Also 52% of the general public would
be unwilling to give to a charity that is
investing in a way that is against its
mission, and a further 31% would be less
likely to give. The survey illustrates a
growing public interest in the finances of
charities, and the risks to both reputation
and income that charities face by not
investing in line with their mission.
Public support for ethical investment has
increased significantly in recent year. In
2001 over 40% of the public said that
they would prefer to support charities
which invest ethically and a further 14%
said that they were only prepared to
support charities investing in this way.
Sam Collin, EIRIS charity project
Coordinator says: “Charities should
be responding to the concerns of
supporters by demonstrating that they
are using their finances in an ethical way.”
“People do expect charities to run their
investment according to their mission,”
says Wildsmith.
Although Charles Mesquita says: “I
would dispute this. I think if you ask
donors, they are not even aware of
ethical investment issues in the first
place. If you ask people giving to the
NSPCC, they are not going to stop
giving just because the charity invests
in a particular way. And I think this
survey shows that EIRIS has a vested
interest in playing up the interest in
ethical investments.”
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