It's time for charities to concentrate on ethical investment

The public is expecting the third sector to take a lead in investing assets in a responsible way, says ethical and responsible investment specialist Helen Wildsmith

Helen Wildsmith
Helen Wildsmith

This is National Ethical Investment Week, and new YouGov research has shown a huge expectation by the public that charities should ensure they invest their assets in a responsible way. For example, 59 per cent of respondents with investments told YouGov they believed that UK charities had a responsibility to take a lead on ‘stewardship’ issues, such as the environment or labour rights. 

A charity’s financial assets can play multiple roles in achieving its mission, above and beyond paying a regular dividend that sustains its work. When thinking about stewarding their assets, trustees could think about which corporate chief executives they’d like to meet on behalf of their charity and what they would ask these people if they came face-to-face with them. This can shed light on what a charity’s stewardship priorities could be and might provide clues about which other asset owners or fund managers they could work with to increase their leverage.

In our firm, for example, investors in our Ethical Fund for charities were interested in whether the FTSE 100 financial services companies they hold shares in pay the Living Wage. This led to working with other like-minded investors and collaborating with Fair Pensions, a charity that campaigns for responsible investment. This year the three companies we have been focusing on – Aviva, HSBC and Legal & General – have responded positively to our engagement. For example, at its annual general meeting in May, HSBC announced it will be extending the Living Wage to all their contractors across the UK, including 2,900 cleaners, security guards and catering staff.

Once trustees feel comfortable with their approach to stewardship, they could join other charities in signing up to the UK Stewardship Code.

Investing for impact

Thinking about investing directly for mission-aligned impact, or indirectly through a community development or social investment fund, can lead to fruitful discussions among a charity’s staff and trustees.

For example, those involved in assessing grants can start to think about how the money might be recycled. Are there ways that cash could be granted temporarily and then repaid so that it can be used again? Financial experts often enjoy thinking about how their expertise could be used to tackle social or environmental issues head on. How would I use bond or patient equity financing to help tackle this problem? These conversations can even break through silos and develop an organisation’s collective wisdom.

An often-cited case study is Barrow Cadbury Trust, a foundation that supports vulnerable people through its investments as well as through its day-to-day charitable activities. Barrow Cadbury recently invested £200,000 in Bristol Together, a community interest company that has promised a decent return on the investment and will use it to help create full-time jobs for ex-offenders and homeless people.

It can take time to have these conversations, but it is important that charities are involved in developing their own ethical and responsible investment policies. How else will you know that your investments are really aligned with, and working hard for, your missions?

I’d urge trustees to take an initial step this National Ethical Investment Week (14 to 20 October). This year’s Action Guide for Charities is available at www.neiw.org.

Helen Wildsmith is head of ethical and responsible investment at CCLA

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