Charity Commission consults on responsible charity investment

The Charity Commission invites responses to its consultation on responsible investment by charities.

The Consultation

When announcing the consultation on its website, the Commission particularly asked: “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?”

The Commission does not consider such barriers exist in the current law or in its guidance, and encourages trustees to consider whether their investments are consistent with their charity’s aims. However, the Commission recognises that trustees are “understandably” unclear about the extent of their ability to invest responsibly. Some in the sector take the view that the current law does not in fact clearly empower trustees to make responsible investments. The judgment in the leading case in this area, Harries v Church Commissioners, states that: “most charities need money; and the more of it there is available, the more the trustees can seek to accomplish”. That case sets out exceptions to a principle of “maximum return” on financial investments, which the Commission itself interprets carefully, advising trustees to:

consider the aims and objectives of the charity, keep in mind the fundamental principle of maximising return; if an ethical policy is adopted, it should be set out in writing and should be clear both on positive aims and any exclusions, and that

• The leading case dates from 1992, since when, as the Commission notes, “there are clear indications of shifting public expectations, a changing public mood” towards not only environmental sustainability, but also institutions’ records on human rights and treatment of workforces.
• if companies or sectors are excluded, the reasons for exclusion should be clearly thought through; the more restrictive the policy (in terms of exclusions), the greater may be the risk to returns.

One of the exceptions to the maximum return principle is that charities can avoid investments which might hamper the work of the charity: for example, by damaging its reputation so that it was less able to help its beneficiaries or so that its donation levels decrease. Making a judgment on whether the diminished investment return is outweighed by the risk to the charity’s work is a careful balancing exercise: the Commission is drawing attention to the fact that changing public attitudes may require existing balances to be recalibrated.

The consultation should be seen in a context which includes increasing numbers of charities refusing donations from, for example, oil companies and pharmaceutical companies implicated in the opioid crisis. Again, this is a difficult area for trustees to navigate: as the Commission acknowledges “what is ethical may not always be universally accepted”.

Lack of clarity is inherent in the language used about investment with non-financial, or not exclusively financial, aims. A plethora of adjectives are routinely placed in front of the word investment: “socially responsible”, “impact”, “social”, “responsible”, “ethical”, “mission-related”, “programme-related”, “green”, “sustainable”. Articles on the topic frequently conflate a charity’s objects, its strategic aims and its cultural values, or equate general social goods with particular charitable aims. However, the current law requires trustees to distinguish between these when making investment decisions.

The legal underpinning to the Commission’s current guidance refers several times to the absence of “definitive decisions” on questions charity trustees might have about responsible investment, such as whether “the social outcome, the furtherance of the charitable purpose, and the financial return could together constitute the aggregate return on the investment”. Currently, the Commission is not explicitly suggesting that it will make such a definitive decision.

Charity trustees, charity investment managers, employees or anyone with an interest in these issues can share their thoughts by emailing to policy@charitycommission.gov.uk. The consultation closes on Tuesday 31 March.