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Ethical investment is more than beating one bastard while funding three others

As part of ethical investment week, now drawing to a close,  the Charity Finance Group published a survey of its members that found that  just over half had any sort of ethical investment policy, and that of those who did, most only used “negative screening”, where they avoid companies which have activities that go against the charity’s aims.

There is little, in short, to suggest that charities are displaying higher ethical standards in their investment than the average man on the street.

This is a bit of a worry. If charities don’t have any sort of ethical investment policy, it makes it almost certain that they’re investing money in someone, somewhere, who is doing something harmful to their beneficiaries.

Charities are supposed to act ethically, after all. Charities are supposed to be the ones leading the crusade against companies that pollute the environment, make banned munitions, and run sweatshops in the developing world, aren’t they?

It’s also perhaps disappointing that most that have ethical policies are worried only about their own beneficiaries. Those who protect the environment are often happy to invest in sweatshop-owners. Those who fight to prevent poverty are often happy to invest in arms manufacturers. And so on. Many charities have developed investment policies to beat the bastards they’re personally battling, while funding three other types of bastard.

Charities’ attitudes also seems to be at odds with what the wider public want from them.

A survey by Uksif, the ethical investment organisation, found that 59 per cent of investors want to see charities take a lead in investing more ethically. Whereas, if anything, charities are being dragged into the field by their investment managers.

There are reasons why charities have been slow to invest ethically.  One is a lack of resource – it takes time and effort to develop an ethical policy, and the trustees who should be in charge of doing so are often part-time, with limited investment experience.

Another is the separation of those who manage money from those who spend it – a CFG seminar on this subject found that there was often a lack of connection between finance teams and their campaigns and policy counterparts.

A third is a belief that you should focus first on maximising your returns – or perhaps more serious, that trustees are required to maximise returns, because of their fiduciary responsibility to their charity.

Charities have argued previously to me that it’s their duty only to be concerned with their own beneficiaries – or, to put it another way, that if the best way to help dogs is to invest in people who make cluster bombs, then dog charities have a duty to do so.

I’m not sure this is really true, but if it is, it seems silly. And it argues that perhaps the duties of charities should be widened to include something that looks a little like the Hippocratic oath – not just to do good for your beneficiaries, but to do no harm to everyone else while you’re at it.

Of course, in reality, the question is probably moot, because there is no evidence that being ethical in your investment costs money. If anything, there’s some evidence that companies which have good environmental, social and governance records provide a better return for the long-term investor.

In addition, Charity Commission guidance also indicates that charity trustees have reasonably broad powers to make investments in line with their ethical judgements.

The evidence suggests that the number of charities who are developing an ethical investment policy is growing. But it appears that it will be a while before the 59 per cent of investors who want to see charities take a lead are likely to get their wish.