Last week, Comic Relief made changes to its investment policy after being hit with negative publicity. David Ainsworth asks whether other charities would fare better if exposed to the same scrutiny.

As you probably know, Comic Relief featured in a Panorama programme late last year, which revealed it invested money in arms, alcohol and tobacco companies, and featured a number of supporters saying they were pretty disgusted with this policy.

Last week it confirmed it had sold those investments, instituted a review, and introduced a number of changes on the back of the review panel’s recommendations.

It’s a pity it took an exposé by a TV programme to make them do it, but the charity now has a really good model. *

The review panel said: “The focus of Comic Relief’s revised investment policy should be on using the charity’s capital to do good rather than merely preventing it from doing harm,” and the charity seems to have taken this idea on board. Its chair, Tim Davie, promised an investment policy “in line with the ethos of the charity”.

The corollary to this, obviously, is that the charity wasn’t investing in line with its ethos before. This doesn’t sound too sensible, but nor, sadly, is it the only charity which you could say this about. Research from the Charity Finance Group suggests that well over a third of charities with more than £1m under investment still have no ethical investment policy at all. So I suspect a lot of other charities would fare badly if their investments were examined with the same scrutiny.

The only reason this hasn’t happened already is because it’s quite difficult to work out what investments a charity actually holds, because charities don’t have to disclose much investment information in their accounts.

Ironically, Comic Relief was actually singled out because it was transparent and did list its investments in its accounts. Researchers for Panorama told me, while researching this programme, that they thought loads of other major charities had dodgy investment policies. They just couldn’t find enough evidence to turn the spotlight on them.

This doesn’t strike me as very reassuring. Panorama’s comments suggest the only reason lots of other charities haven’t had a kicking in the media is because they’ve so far successfully hidden the evidence. You have to wonder whether they'll continue to be able to hide the evidence forever.

You do see charities where investment is driven by profit maximisation at any cost, but everything else is focused on doing good. These organisations are likely to end up behaving in a completely quixotic fashion, investing in companies their beneficiaries and supporters despise. You get the impression that at some charities, the investment committee and the grants committee have never met, don’t like each other, and wouldn’t talk to each other if they were marooned together on a desert island.

Even among charities which do have an ethical investment policy, many have only a token exclusion of tobacco. Others avoid a particular area their charity is concerned about – the environment, animals, or arms – while continuing to invest in the complete bastards elsewhere in the market (the “dogs don’t smoke” principle of investment).

That kind of screening is better than nothing. But last year, as a member of the public, I gave my support to around a dozen charities. I don’t want to see each of them investing in companies the others campaign against.

As a charity supporter, I’d like my causes to be allowed to say: “We feel it is our duty to behave morally in all our dealings, and so we want to have nothing further to do with these companies, who are right scumbags”.

I'm aware this attitude may run into legal problems: strangely, a charity isn’t legally permitted to avoid particular companies just because they’re totally reprehensible.

Basically, as I understand it, you are only permitted to avoid investing in companies if a) you think they won’t make you money b) you’re worried about your reputation or c) their actions are directly harmful to your beneficiaries.

The law, therefore, creates very different pressures on different charities. Foundations, the largest investors, are unlikely to have much reputational worry, but they are often established for very broad purposes, and can therefore justify avoiding investment in almost any business if it falls short on moral issues.

Operational charities, on the other hand, do have their reputation to worry about. Often it's their most important asset. And so it's really these charities that are the focus of this piece.

If these charities do not have investments driven by their ethos, sooner or later someone will notice, and then they get the Comic Relief treatment – public excoriation, mea culpas on the radio from the chief executive, that sort of thing.

So I feel a lot of charities ought to strengthen their ethical investment policies because they are playing dice with their reputation – especially because research in Charity Finance magazine this month (subscribers only) suggests the impact on return is pretty modest or non-existent.

But it feels a shame to say that charities ought to invest ethically to avoid potential damage to fundraising or campaigning, or embarrassment to trustees and senior executives. Charities should invest ethically because it’s right.

* In the interests of full disclosure, my editor Andrew Hind was on the review panel. But I’d say nice things about it even if he wasn’t my boss.