The UK’s Charity Commission is seeking views on responsible investing by charities, to find out how they can align their investments with their charitable aims.
A blog on the regulator’s website by Sian Hawkrigg, strategic policy advisor at the Commission, announced the initiative, saying the regulator aims to discover the barriers to more widespread responsible investments, as well as how to support trustees investing in a way that reflects a charity’s purpose and values, while achieving good returns.
Hawkrigg said: “We want to ensure charities are aware of what they can do to understand their options when it comes to investing responsibly, and if necessary, equip them with tools to help make thoughtfully considered decisions.”
She added that the initiative had come about because of the public’s increasing demand for transparency from the charity sector, and because trustees needed to consider the long-term financial sustainability of their investments.
Trustees generally have a legal duty to seek good risk-adjusted financial returns from the way in which they invest their charity’s assets, but they can, under certain circumstances, take ethical and other non-financial considerations into account when deciding how to invest.
These circumstances include where there is a conflict with the charity’s purposes, or there is no risk of significant financial detriment.
According to Luke Fletcher, a partner at law firm Bates Wells, investment matters are often delegated to a charity’s investment committee, without a review of the investment policy itself or the terms of reference of the investment committee, sometimes for many years.
Fletcher said: “This means there can be a disconnect between the grant-making activities of foundations – where impacts are evaluated – and the investment activity itself – where the impacts often receive relatively little scrutiny.”
“There can be a disconnect between the grant-making activities of foundations – where impacts are evaluated – and the investment activity itself – where the impacts often receive relatively little scrutiny.”
Luke Fletcher, partner at law firm Bates Wells
And he continued: “There is also often a perception that the duty of trustees is simply to ‘maximise’ financial returns from investments, when the law concerning charity investment is actually quite different, especially where investments conflict with the charitable objects of a charity or otherwise place its work or reputation at risk.”
Last March, a coalition of UK charities sent an open letter to the Charity Commission and the Attorney General, seeking a landmark ruling on whether charities should ensure their investments support their goals and their duty to provide public benefit.
They also asked for specific legal guidance on whether charities should adopt investment strategies aligned with the Paris Agreement’s aim of limiting global warming to 1.5°C above pre-industrial levels.
The coalition – which includes the Royal Society for the Protection of Birds and the Joseph Rowntree Charitable Trust – has a membership of around 50 foundations responsible for £3bn (€3.6bn) worth of assets.
Fletcher welcomed the Charity Commission invitation, but said: “Ideally, we would have a court judgment which affirms the view that the development of a charity’s investment policies should be informed by its purposes and values, and which clarifies how this approach relates to traditional financial investment.”
Such a judgement, he said, would help resolve the question of what happens where there are trade-offs or compromises between fidelity to purpose, and financial returns.
Fletcher also urged the specific mention and treatment of climate change to be included in future guidance.
When asked whether this would develop into a formal consultation, a Charity Commission spokeswoman said: “We are engaging with, and seeking views from, interested parties in order to inform our next steps in this new programme of work. At this stage we do not know what the outcome of this will be, so we cannot say yet whether there will be a need for a formal consultation.”
The Commission will be seeking views until 31 March 2020. Contributions should be e-mailed to policy@charitycommission.