Tobacco. Alcohol. Arms and defence. Gambling. Investing in these so-called "sinful" stocks has brought many charity investors a positive return over the years, but attitudes are changing.
The report Intentional Investing: The Principles, Practicalities and Pitfalls, published by the Association of Charitable Foundations in 2015, said that 59 per cent of the 286 investors who took part in the research had, or planned to have, ethical investment policies. Five years earlier, a similar survey found that only 23 per cent of investors intended to do so. It's not just that ethical investment has grown in popularity, but that it has also started to look beyond the traditional sin stocks and focus more on industries that are linked to climate change, such as oil, gas and mineral extraction.
Kate Rogers, head of policy at Cazenove Charities and co-author of the ACF report, says that charities are increasingly turning to ethical investment to further their goals. She says: "We are seeing a lot more charities wanting to be more positive about ethical investment. It's not about excluding things, but about collaborating and engaging with companies, trying to promote good practice and things that are in line with their aims. Screening is often seen as a cost, but positive screening can be a benefit in terms of social and financial returns."
Tom Rutherford, head of charities at the investment firm Lombard Odier, says that improvements in the data and information available to investment managers allows charities to be more demanding about their investments' social outcomes, as well as the financial benefits.
"The data is giving more tools to and putting more demands on investment managers," he says. "But that same data is also available to the public at large and is ultimately a mechanism for public censure or challenge to charities in terms of how they steward their assets."
Rutherford explains that ethical investing is shifting from the approach of cutting out "bad stocks" to identifying the best corporate performers on a range of social outcomes that also achieve good financial returns. He says: "I think the industry at large has historically been lazy around this point. It has managed the social outcomes and the ethical concerns of charity investments to their own convenience, and has for the most part underinvested in such activity. Only recently, as social attitudes have changed and become more demanding, have investment managers begun to respond."
So what can charities do to construct a good ethical investment policy? Rogers says: "My advice is to start with the charity's fundamental aims: ethics or morality, or however you want to label it, is so personal and subjective, but you have a group of trustees who have to make a decision. It is the charity that is making an ethical decision, so it should be grounded in the charity's aims."
Alexander True, investment manager on the charities team at Sarasin & Partners, says charities should carefully consider any ethical policy's financial impact. He says it is vital that all trustees - not just the charity's investment committee - understand the implications of any change in investment policy. Charities are increasingly realising, True says, that simply calling for no direct investment in an industry does not always mean there is no indirect investment in an unethical industry. He cites two cases: the Church of England's indirect investment in the payday loans firm Wonga, and Comic Relief holding arms and tobacco shares.
True says: "I think we've seen that 'no direct' wording begin to fall away as people become increasingly concerned about what is under the bonnet when you start to understand what is in third-party fund holdings."
Gemma Woodward, executive director at Quilter Cheviot Investment Management, says charities need to take a long-term approach, focusing not just on what is good for the charity now, but also in years to come. Most importantly, she says, a charity needs to be clear about the scope and extent of its ethical investment policy: for example, does a policy to exclude fur companies from a charity's investment portfolio extend to excluding companies that run stores or websites selling fur products?
Woodward says: "Every charity should have an ethical policy. This is not to say it should rule things out, but it should be clear what it stands for. This doesn't apply only to the investments. I think that's one of the biggest trends: charities are realising you can't have a policy that says we'll do X, Y and Z with investments and not apply that across all our activities, which is far more complex."
What other industries could be next on the agenda for ethical investment? The answers range from sugar to plastics, from the companies that are the biggest carbon producers to those that fail to pay suitable wages to their employees. This may well be the beginning, rather than the end, of a charity sector shift away from investing in damaging industries.
CASE STUDY: Wellbeing legislation makes an impact on the Welsh sector
The Well-being of Future Generations (Wales) Act 2015 has had effect on charities' ethical investment policies in Wales, especially those that work with the public sector. The act, passed by the Welsh government, means that public sector bodies have to take into account sustainable development - specifically a focus on improving economic, social, cultural and environmental wellbeing in Wales - when they are formulating their policies.
Seven wellbeing goals must be taken into account: prosperity, including a low-carbon economy; resilience, especially in the face of climate change; better health; greater equality; more cohesive communities; a vibrant and thriving Welsh culture and language; and a globally responsible Wales.
Julie Hutchison, charities specialist at Standard Life Wealth, says Welsh charities are asking fund managers how to comply with the act through their investment policies, especially how they can reflect the low-carbon economy aims included in the Paris Agreement on climate change. Hutchison says the Welsh public sector is also starting to reflect the wellbeing goals in its procurement processes.
Ethical investment can help charities meet the act's objectives, which, while not strictly applying to the voluntary sector, have changed the approach to environmental and social issues among the public sector bodies with which many charities work and are funded by.
Hutchison says: "The impact of this ground-breaking sustainability legislation is already coming through in the investment sector. I've seen Welsh public body charities making clear reference to the wellbeing goals from the 2015 act in investment mandates that are put out for review. Action on climate change and health are two areas where clear links can be made between the wellbeing goals and investment outcomes."
It is not yet clear whether similar laws will be passed in the other three home nations, but Hutchison says the act's progress makes it something to watch out for in the future.