When most people think of “responsible investment”, climate action and carbon reduction come to mind first. Yet for charities, environmental, social, and governance (ESG) principles cover much more – extending to community benefit, fairness, diversity, and transparency.
For trustees and leaders, meaningful investments now go beyond simply “avoiding harm”. The focus is shifting towards making positive, lasting impacts through projects in affordable housing, clean energy, social infrastructure, and tackling inequality.
Importantly, responsible investment doesn’t mean sacrificing returns. Experience increasingly shows that when charities align their investments with their mission and values, they not only reinforce reputation and public trust but can also strengthen financial health.
Why does responsible investment matter for charities?
At the heart of every charity is a passionate commitment to a cause. Investments must reflect that mission, as stakeholders – including staff, beneficiaries, donors, and regulators – are more attuned than ever to whether charities’ capital is being used for good.
Misalignment now carries genuine reputational risk. For example, a health charity found holding shares in tobacco companies, or an environmental charity invested in fossil fuels, may face scrutiny from the media and public. Donors expect clarity and consistency between their contributions and their impact.
Putting purpose into practice
Charities today have more options than ever before for aligning their investments with their goals. Previously, strategies mostly focused on excluding sectors or companies that contradicted the charity’s values.
Now, trustees can empower fund managers to invest positively – targeting companies and projects that create measurable social or environmental benefit. Charities working to end homelessness may invest in affordable housing; those focused on global health might prioritise solutions for clean water or vaccines. Others choose to engage actively with companies as shareholders, aiming to encourage better business practices and greater social responsibility.
A growing trend is impact investing, which sits at the heart of purpose-led financial decision-making. Here, charities select opportunities not just for financial performance, but explicitly for their social or environmental impact. From supporting medical innovation to funding renewable energy, this approach enables trustees to directly link their investments with positive change.
A standout case study is a healthcare foundation with a £1bn portfolio which set out to achieve strong financial returns and measurable improvements in public health, both locally and globally. By diversifying into emerging markets and healthcare venture capital, they supported organisations developing innovative treatments.
With adviser guidance, the foundation selected skilled investment managers and built a portfolio focused on growth and impact. This strategy helped them advance medical technologies while maintaining financial stability, showing how charities can use investments to secure their future and create meaningful change in people’s lives.
From niche to mainstream
With rising expectations around sustainability, charities are under increased pressure to ensure their investments reflect their values. Responsible investment is no longer niche, but essential to aligning mission, reputation, and long-term performance. Stakeholders – donors, beneficiaries, and even the public – are asking more questions about where and how funds are deployed.
Regulatory changes have pushed ESG to the forefront, making effective integration easier for charities as fund managers adapt their offerings. This shift is creating more opportunities for charities of every size to invest with purpose, access innovative tools and strategies, and tailor portfolios that reflect their unique missions.
For example, organisations now often pursue a dual mandate – seeking both financial returns and measurable impact – although capacity and funding will always affect how far each charity can go.
Navigating frameworks and reporting standards
Keeping up with ever-evolving ESG regulations and reporting requirements is a genuine challenge. Frameworks such as the UN Principles for Responsible Investment (PRI), the Task Force on Climate-related Financial Disclosures (TCFD), and government consultations on mandatory climate transition plans can have ripple effects throughout the sector. Charities of all sizes feel the impact, and staying informed is essential to future-proof decision-making.
Independent, expert advice has never been more valuable. An adviser acts as a voice for their clients – helping charities anticipate new rules, interpret complex standards, and ensure that reporting does more than tick a box. Good reporting tracks progress, demonstrates impact, and builds trust with donors and regulators.
Aon is committed to this advocacy and collaboration. For example, we have partnered with the University of Cambridge Institute for Sustainability Leadership for several years, contributing to research on sustainable investment and nature-based investment. We also engage in regulatory consultations – such as climate transition planning – to represent our clients’ views and push for practical, proportional solutions that empower trustees and maintain focus on their core mission.
A clear framework: the ABC approach
For trustees approaching responsible investment, a simple framework can help cut through complexity and guide decisions. One effective model is “ABC”:
- Avoid harm by excluding sectors that are at odds with your mission.
- Benefit stakeholders by favouring companies with positive social or environmental impact.
- Contribute to solutions by investing directly in areas or ventures that are closely aligned with your charity’s purpose.
Impact investing fits naturally in the “contribute” category, enabling charities to direct funds to projects or organisations – such as social housing, education, health innovation, or climate action – where real-world impact can be tracked and reported. This approach brings accountability and a direct connection between capital and mission-driven outcomes.
A clear framework helps trustees clarify their priorities and unlock opportunities that might otherwise seem out of reach.
Practical steps for trustees
The best place to start is by setting clear goals and embedding them in a responsible investment policy. Trustees should consult with advisers and fund managers, challenging them to show how ESG and impact investing is integrated and how it supports their charity’s objectives.
Staying flexible and well-informed is key – the landscape changes quickly and new opportunities are always emerging. Regularly review your portfolio to ensure ongoing alignment with your charity’s mission and values.
Finally, remember that collaboration has real power. Sharing knowledge, pooling expertise, and working in tandem with other charities can help influence the market and drive positive sector-wide change. For example, initiatives like the Endowment Investing Challenge show how collective action can establish innovative, impact-driven portfolios that support social good.
Responsible investment is about much more than compliance. It means linking a charity’s financial strategy to its core purpose and demonstrating positive impact clearly and transparently. Charities that define objectives, work collaboratively, and report progress openly will be best placed to navigate the responsible investment landscape and truly create lasting change.
Jennifer O’Neill is head of not-for-profit investment and Fiona Simpson is an associate partner at Aon
