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Whilst it is not yet a regulatory requirement for charities to invest responsibly and sustainably, it is becoming a topic of increased interest for charity investors, their supporters and their beneficiaries.

How can charities approach responsible investing for the first time?

Leonora Rae Leonora Rae Business Development Support
Opinion

How can charities approach responsible investing for the first time?

Leonora Rae

Leonora Rae
Business Development Support

Whilst it is not yet a regulatory requirement for charities to invest responsibly and sustainably, it is becoming a topic of increased interest for charity investors, their supporters and their beneficiaries. However there are a growing number of different responsible and sustainable investment strategies available often accompanied by increasingly complex terminology.

With all the different definitions and models available, the result can be a lot of confusion for charities when they are first considering responsible investment: ‘should we just focus on negative screening?’, ‘are we looking to make an impact?’, ‘is sustainability for us?’ Every charity has its own needs and priorities, which is why your choice of investment manager and how you make them accountable for your strategy is so important.

If you’re developing a responsible investment policy and are looking for an investment manager that can implement it effectively, this is very likely to encompass or combine some of the following different elements of a responsible investment approach. 

  • Ethical
  • ESG (Environmental, Social & Governance)
  • Positive Screening
  • Sustainability & Impact
  • Thematic
  • Voting & Engagement

 

At EdenTree, these elements are fully integrated into our investment process, which is known as our Amity approach. This is a comprehensive responsible and sustainable investment process, encompassing Research, Screening (both negative and positive, capturing ESG risks), Engagement and Governance. 

Research

In addition to market commentary, including macro-economic and geo-political viewpoints, our responsible investment team discuss how they integrate responsible and sustainable investment themes with real-world market opportunity. Our investment team write regularly on a range of topics for charity investors, such as corporate engagement or particular issues like plastic waste. Our aim is to help you best understand how your investment strategy can be aligned with your charity’s mission and values.

Screening

To be considered suitable for inclusion within our Amity Funds for Charities, an investment idea must meet the criteria laid out by our responsible and sustainable screening model. This helps charities to protect their reputation by going beyond simple exclusions, as we look for investments that aim to avoid harmful activities that are detrimental to society and who demonstrate their commitment to positive business activities. 

Engagement

We believe that the way we engage with businesses enables us to make sound, responsible investment decisions and act as a catalyst for change. We form constructive relationships with the companies we are considering investing in and continue to engage with them after we have invested as part of our monitoring programme. This approach can be a great way to excite your charity’s internal and external stakeholders, demonstrating the impact the organisation is having through its investments.

Governance

We believe that shareholders have a vital role to play in encouraging high standards of corporate governance from the perspective of being long-term investors. We therefore seek to vote at all UK meetings in which we have a shareholding, and have appointed Glass Lewis as our proxy advisory service for overseas governance and voting. As stewards of your charity’s money, we act as a positive societal voice.

Regulations around Responsible Investing

There is a misconception, albeit a dwindling one, that responsible investing goes against charity rules and regulations. In reality, it is quite the opposite.

Currently, the Charity Commission’s Guide for Trustees (CC14) states that you can invest ethically when:

  • The charity might lose supporters or beneficiaries if it does not invest ethically.
  • There is no significant financial detriment in doing so.
  • Avoiding investment in companies or sectors or companies undertaking a particular activity or operating in a way which may be harmful to the charity’s interests.

 

Reputational risk is a growing concern for Trustees, with major societal issues such as climate change becoming a shared responsibility. Local authorities, pension funds, universities, churches and charities are increasingly being challenged on their investment position on this matter. Those investing in climate challenging or socially damaging companies are at risk of either future exposure or negative returns once the corporations in question are publically challenged. Aligning a charity’s mission to its investment mitigates this risk.

The risk-return trade-off also concerns Trustees as guardians of their charity’s assets. However, academic research, and maturing track records, prove that returns in this space continue to be positive and, in many cases, superior to non-screened funds. Investing responsibly is not just about mitigating reputational risk or achieving mission alignment, it is also about de-risking investment portfolios. Well-regarded companies with strong governance structures, who are less likely to be detrimentally affected by regulatory changes and damaged by misconduct, are undoubtedly better long term investments.

EdenTree believe that regulations around responsible investing will continue to tighten for charity investors, whilst public pressure will only continue to grow. It is therefore important for charities to be aware of the opportunities available and to think carefully about the way they invest. This shouldn’t feel like a burden, but rather a great opportunity to align your organisation and its mission to your investments. A question to raise in your next Board meeting may be; is your investment manager helping you and your investments to achieve ‘profit with principles?’

This is the first of two blogs where we aim to summarise some of the key takeaways from our recent charity ‘Ethical Toolkit’ seminar. Part II, ‘Writing a responsible investment policy statement for charities’ can be read here

The summary of the Charity Commission's guidelines are here