Recently, there have been several instances of charitable
investors using their large portfolios as weapons to promote their beliefs.
This week, a group of major investors including CCLA, the
Joseph Rowntree Charitable Trust, Lankelly Chase and the Sigrid Rausing Trust
have written to all of the FTSE 100 asking them to pay the Living Wage
to all their staff,
and promised to put pressure on them at their AGMs if they did not comply.
Meanwhile the Church Investors’ Group took part in a
campaign to persuade BP to change its ways, and adopt a more sustainable
approach to the environment – a campaign centred around investor pressure at
the oil giant’s AGM.
This is part of a growing trend, but these organisations are
still the exceptions, rather than the rule. Most charities do not use their
investment capital as a tool to do good, and many do not even screen out
investments which may do harm to their cause.
The last time the Charity Finance Directors’ Group asked its
members, it found that half didn’t have an ethical investment policy of any
sort,
and those that did mostly screened out investments incompatible with their
cause area, a process known as “negative screening”.
Recent conversations with investment managers suggest that
relatively few charities go further than this, and actively choose companies
which have socially beneficial products or good environmental, human rights and
labour relations records.
The lack of ethical policies in the sector seems to throw up
two main problems.
One is reputational risk. Rightly or wrongly, people expect
higher ethical standards of charities than they do of themselves, and charities
which have no ethical investment policy are failing to live up to that
expectation.
The second is one of morality. Charities can obviously
choose to invest in any company they wish. But it seems odd that an
organisation which dedicates itself to public benefit in one field would invest
in a way which actually sets back other branches of the sector. If a charity
has no ethical investment policy, then it will almost inevitably have money
invested in companies with questionable environmental, human rights and labour
policies, as well as arms manufacturers, tobacco sellers and strip miners.
Some of the reasons why more charities don’t have ethical
investment policies can be found in a recent report by ethical investment group
FairPensions,
which found that many charities are fearful of ethical investment, or lack
knowledge about it. Trustees feel that they aren’t able to exercise moral
judgements because they have a fiduciary duty to maximise returns at all costs.
The actuality is otherwise. It’s perfectly permissible for a
charity to take a stand morally, if it feels its reputation would be harmed
otherwise. Both the law and Charity Commission guidance make this clear
(although many investment professionals feed the commission guidance does not
go far enough) and there’s also over a decade of evidence which suggests that ethical
investment is not less profitable than regular investment. Many investment
professionals now believe that because it focuses on selecting the best-run
companies, it is actually more profitable.
Despite all this, many trustees are working part-time,
without a lot of hours to devote to relatively complex new ideas, and uncertain
of what they are allowed to do under the law. I suspect many have simply filed
the whole idea of ethical investment in a box entitled “too difficult”.
It is hard to blame them, but it is also hard to believe
that the sector does not suffer as a result.