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Ethical investment by top charities falls, finds survey

Finance | Niki May Young | 23 May 2011

A survey into the financial management of 64 charities with an annual income over £1m has found that those charities have reduced their ethical and socially responsible investments from one-third to one-fifth.

The Finance Count 2011 survey, published by Agenda Consulting and the Charity Finance Directors' Group (CFDG) found the charities surveyed had changed their financial practice significantly over the past year, including their investments.

Ethical and socially responsible investments are down from one-third last year, to one-fifth this year. The perception, the survey found, is that "ethical investment may generate lower returns, this may be reflecting a need for charities to prioritise gaining the maximum financial return on their investments in a difficult financial climate". 

But Mark Morford, product manager for investments at the Charities Aid Foundation thinks there may be other reasons for the fall:

“Ethical Investment is not an area that organisations can or should move into and out of frequently. In reality, either the charity has an ethical policy or it does not. If it does, then returns should not be benchmarked against funds which do not share the restrictions. As such I would doubt that many are moving out purely to maximise returns.

“The drop in ethical funds may in part be due to charities heeding Charity Commission guidance on investment which says that trustees must consider the best investment for their organisation’s needs. As such if there is no compelling reason to place restrictions on the fund trustees should not do so and should be seeking the best return possible."

However, Caron Bradshaw, chief executive of CFDG, says that the survey is not necessarily representative of the sector at large, being conducted primarily for benchmarking purposes, and refers to an Eiris/CFDG research piece in 2010 which showed that "60 per cent of charities with investments over £1m now have an ethical investment policy and 32 per cent that did not currently invest ethically were planning to discuss the issue in 2011".

But, she added: "Our stance is that charities should consider their approach to ethical investment (and social investment) and unpack some of the presumptions around performance of ethical investments -  both in financial and non-financial returns." 

The survey also highlighted shifts in processing donations with the percentage of gift aid not collected by charities having reduced by 13 per cent. This still means, however, that charities are missing out on 32 per cent of the gift aid they are entitled to claim. The government's Budget announcements of gift aid reform may do well to reduce this figure, said a spokeswoman for CFDG:

"The suspicion is that charities are put off by the bureaucracy involved in claiming for smaller donations. Anything that makes this easier will improve the situation, but it's difficult to see what change this will make in terms of scale," she said. 

Other results found that BACS payments by the organisations surveyed had increased to 68 per cent of transactions paid online, while payment by cheques had dropped from 26 per cent last year to 17 per cent this year.

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Directory: Charity Finance Directors' Group (CFDG)