The Charity Commission has opened a consultation into responsible investment and how charities can align their investments with their aims.
The move was announced in a in a blog on the regulator's website by Sian Hawkrigg, strategic policy adviser at the Commission, which says: “Many in and around the sector are championing this way of thinking and leading the way, but as the regulator we want to understand what is holding others back, and give more charities the confidence to follow suit where possible.”
It says that a shift in public mood is leading to a greater desire for transparency and an interest in “not just in what a charity achieves, but how it behaves along the way.”
It also argues that it is “increasingly prudent” for trustees to look at “the factors affecting the longer-term financial sustainability of their investments.” It quotes Intentional Investing, a report published by the Association of Charitable Foundations (ACF) in 2015, as saying: “Evidence even suggests that, in some cases, the pursuit of responsible business practices can be positive from a financial as well as a values perspective.”
The Commission says although some charities already have responsible or ethical investment policies, it wants to “ensure that others are not shying away from this due to a lack of awareness or the area being seen as too difficult”.
“We want to ensure charities are aware of what they can do in this area, to understand their options when it comes to investing responsibly, and if necessary, equip them with tools to help make thoughtfully considered decisions,” the blog says. “In short, we want more trustees to feel empowered to take a fresh look at their financial investments and make informed decisions that are right for their charity.”
It stresses that it is not seeking to tell trustees what conclusions they should reach when making investment decisions but that it wants to “put this issue at the forefront of trustees’ minds and encourage and support them to ask the right questions.”
‘Seriously outdated’ law
The Commission points out that both the law and its own guidance allows trustees to consider non-financial elements, such as adopting an ethical approach to ensure the work of the charity is not undermined or conflicted, when deciding how to invest.
However, a coalition of charities, including NCVO, RSPB, ClientEarth, Joseph Rowntree Charitable Trust, Nesta, Ashden Trust and Access, alongside law firm Bates Wells was was formed in 2019 to seek a legal ruling on responsible investment. The coalition believes the “law in this area is seriously outdated” and that “a tribunal of the present day, faced with current evidence, would conclude that charity trustees should invest in a manner which intentionally reflects their charities’ objects, strategy and values, with a view to public benefit”.
Luke Fletcher, a partner at Bates Wells who is acting on behalf of certain charities in the coalition, welcomed the Commission’s consultation, saying that it “seems a really positive move and direction of travel.” However, he cautioned that there “are some underlying tensions in this area”.
“The main case on the issue, commonly known as the Bishop of Oxford case, dates from 1991 and does not even mention climate change, which is now the biggest long-term issue facing investors,” Fletcher explained. “Our reading of the case is that there are obligations upon trustees to ensure that investments do not conflict with charitable objects and, where certain investments risk undermining the work of a charity, the law expects trustees to weigh up the risks of an investment in the round and to undertake a balancing exercise.
“But it’s very difficult for trustees to know with certainty what the law expects trustees to do in practice, especially when the evidence indicates that the markets as a whole are not aligned with the goals of the Paris Agreement. This creates uncertainty about when a conflict between investments and charitable objects arises.
“We now have the possibility that a wide range of investments may be thought to conflict with charitable objects or undermine charitable work, which was never envisaged at the time of the Bishop of Oxford case.”
He said this is why the coalition believes “a court judgement would bring clarity and support this new direction of travel we are seeing from the Commission”.
The Commission’s consultation is open for comments until Tuesday 31 March 2020. Comments are encouraged from charity trustees, charity investment managers, employees or “anyone with an interest in this issue.” Those that want to take part should send their views to [email protected].