Will new guidance on charity investment encourage more charities to invest responsibly?
EIRIS welcomes the launch of the Charity Commission’s new investment guidance for Charities – CC14.
In responding to the consultation on the new CC14 guidance earlier this year, EIRIS highlighted the potential reputational risks which can arise for those charities which do not invest in line with their mission. We also stressed the need for charity trustees to consider environmental, social and governance (ESG) risks as part of their fiduciary duties.
We therefore welcome the strong focus given to effective management of ESG risk within the Charity Commission’s new guidance on financial investments. Greater detail around ethical investment, particularly on Programme Related Investments (investments aimed to help a charity achieve its aims which may also have a financial return) and Mixed Motive Investments (investments that combine financial investment and programme related investment) also serve to highlight the broad range of responsible investment options which now exist for charities.
However, the guidance is issued at a time when 40% of large UK charities have no published responsible investment policy, a figure which has not changed for the last two years. Weaknesses exist in many of the policies that do exist as they do not include a way of measuring their effectiveness.
The new CC14 guidance therefore presents a perfect opportunity for all charities to review their investment policies. The guidelines suggest charities should:
- decide on the importance and extent of ESG criteria in their investment policy
- look at the reputational risk to the charity that might arise from their ESG policy (or lack of one)
- make sure that any investment manager they use is aware of and willing to act in accordance with their ESG policy
- recognise that the extent to which a company manages ESG risk may have an effect on the returns that it can offer and its long term viability
- look at whether a company discloses its ESG risk management process and how it verifies that disclosure
A survey published earlier this year by the EIRIS Foundation into the public’s perceptions of charities underlines the need for charities to invest responsibly and consider these ESG risk issues. Seventy-four per cent of people surveyed agreed that large charities should adopt ethical investment policies prohibiting investment in activities that are contrary to their specific work and values.
With the launch of the new CC14, the case for responsible investment has arguably never been clearer – and there are lots of resources available to help. The EIRIS Foundation’s CharitySRI.org website has detailed information for charities wishing to develop a new, or amend an existing, responsible investment policy. Our Trustee Toolkit is a good starting place for trustees and senior staff; this guide will shortly be revised to update it with the new Charity Commission guidance.
At a time when competition for charitable donations is increasing, reputation is key. CC14 creates new opportunities for charities to make their investments work harder and to address the reputational risks that arise from failing to invest responsibly. We hope the Charity Commission’s new guidance will encourage many more charities to make investments which further, rather than counter their mission.
