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Charities worried ethical investment will harm financial returns1

Finance | Jonathan Last | 18 Oct 2012

Concern about lower financial returns is holding some charities back from embracing an ethical investment policy, a survey by CFG has found.

During this month and last, CFG surveyed 102 of its member charities for National Ethical Investment Week (14–20 October).

And although the umbrella group can report that 51 per cent of charities it surveyed have some form of ethical investment policy – a rise from 46 per cent when CFG carried out similar research in 2009 – there is concern amongst the remaining 49 per cent that implementing or expanding an ethical investment policy could be to the detriment of financial return for the charity.

Comments on the matter by survey participants included: “The absolute return is more important than any social restraint”; “Prime requirement was to achieve a low-risk investment to protect the capital amount”, and "Difficulty in deciding what ethical restrictions should be".

The survey found that a greater proportion of larger charities have an ethical investment policy – 59 per cent of those with more than £1m in investments have one in some form, compared with only 25 per cent of those with less invested.

Avoiding conflict with the charity’s aims and activities was cited as the most important reason for charities seeking to adopt and retain an ethical investment policy.

What the public think

A separate survey was conducted by YouGov for National Ethical Investment Week, asking 2,183 members of the UK public for their views around ethical investment. It found that almost three in five of those that have investments think charities should be investing their own assets in a responsible way.

The study asked participants whether they thought charities should be taking a lead on ‘stewardship’ issues – such as engaging with the companies they invest in and challenging them if they perform badly in issues such as excessive pay for executive or environmental impact. Almost 60 per cent of the 1,291 respondents that have investments themselves, agreed that charities should lead by example in this area.

And 56 per cent of those same respondents said that charities should measure the social and environmental impacts of their investments to the same extent they measure the impacts of their charitable activities.

Penny Shepherd, chief executive of the UK Sustainable Investment and Finance Association, said she would like to see more charity investors sign up to the government’s Stewardship Code.

Helen Wildsmith, head of ethical and responsible investment at CCLA, a sponsor of National Ethical Investment Week, said charity trustees should instigate discussions about the influence they would like to have on large companies, and investigate whether they are any social investments aligned to their mission.

From the investor's perspective

Another survey, commissioned by Ecclesiastical Investment Management and carried out by OnePoll, suggested that nearly one in five investors say they will now consider ethical investing as a result of the banking crisis. Some 2,000 people were surveyed for this poll.

National Ethical Investment Week and Charity Finance Group have produced a new Action Guide for Charities to provide practical information on how charities and foundations can ensure their savings and investments best support their mission.
 
(additional reporting by Tania Mason)

Directory: Charity Finance Group