Responsible investment should be expected and not have to be justified, charities say

25 May 2021 News

The Charity Commission should expect charities to adopt responsible investment rather than it being something each charity needs to prove their case for, charities have told the regulator. 

Following a listening exercise in 2020, the Commission published draft guidance and opened a consultation on it in April which closed last week.

One criticism levelled at the draft guidance was that it still treats responsible investment as having to be “justified” on a case-by-case basis rather than treated as the norm.

The Association of Charitable Foundations (ACF) called for the guidance to state that responsible investment is “expected, rather than something to be justified”.

“Responsible investment should be a starting point for investment decisions, not an optional extra,” it told the Commission. “It would make more sense that trustees should be required to justify investments that are not taking this approach. Regulation could also seek to encourage charities to make investments that take account of mission, values and purposes, and discourage investments that are contradictory.”

The Charities Responsible Investment Network (CRIN) said that some of its members felt that “an opt-out not an opt-in approach could work well”.

“Charities would not be required to take a particular approach but should have to explain the approaches taken, particularly if they decide not to apply a responsible investment policy,” it said.

The EIRIS Foundation, a charity set up to promote responsible investment, said that a fault with the draft guidance is that while it doesn’t prohibit responsible investment, it does little to encourage it.

Is responsible investment the right term?

As part of the consultation, the Commission asked whether the term “responsible investment” was an appropriate term to use to describe investing in line with a charity’s purpose and values.

The Commission’s definition of responsible investment differs with how it is widely used within the investment community, according to Charity Finance Group (CFG). The Commission views responsible investment as meaning that a charity takes into account its “purposes and values when making financial investments” and not just financial returns.

CFG said that the Commission should “actively encourage sustainable investment” and that guidance should state that responsible investment, as defined by the Commission, is a minimum requirement for charities.

Answering the same question CRIN said: “If responsible investment means taking account of charitable purpose, the guidance, in its current form, is enabling charities to choose not to take into account their purpose within their investments.”

Speaking about the terminology more generally, ACF said the changes in the terms used in the draft guidance “are insufficient and terminology remains problematic” while CRIN said some of its members felt the terminology was still “unclear”.


The responses also took issue with the guidance for seeming to suggest that responsible investments would lead to lower investment returns.

CFG said the guidance implicitly takes this view but that it is a “false dichotomy” as “when one compares the rate of return between ESG funds and other funds, there is little or no difference”.

EIRIS agreed and said the guidance does not reflect that “the myth that there is an either-or decision between financial returns and responsible investment” has been dispelled.

ACF also said that this view is “outdated” but went further, describing responsible investment as “a methodology for achieving” strong financial returns.

OSCR guidance

Some of the responses suggested the responsible investment guidance issued in 2018 by OSCR, the Scottish charity regulator, was stronger than the Commission’s draft guidance.

The CRIN response said the OSCR guidance was “clear and could be used”.

ACF commended the OSCR stance as being more explicit but felt it could still be improved on. It said that “OSCR’s guidance would be a marked improvement on what is currently proposed by the Commission”, but added that it “is approaching three years old and the context of both investments and society expectation has evolved quickly in the interim”.

It said that this meant that “there is an opportunity for the Charity Commission in England and Wales to go further to encourage a more proactive approach to responsible investing”.

A spokesperson for the Commission said it was “grateful” to all those that took part in the consultation.

“We are really pleased that we have received a wide range of contributions from charities and other stakeholders,” they said. “We will now carefully review all responses and intend to publish a summary of these during the summer.”

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