Ditch the 'false binary' of investing responsibly or maximising financial return, regulator urged

The Charity Commission has been urged to update proposed responsible investment guidance to avoid the suggestion that charities must choose between investing ethically or maximising their financial returns.

In its response to the Charity Commission’s ongoing consultation about its guidance on responsible investment, the Association of Charitable Foundations says charities should be expected to make responsible investment decisions rather than having to choose between a “false binary” of acting ethically or seeking to make the most of their investments.

The membership body says the terminology in the proposed guidance is problematic because it conflates responsible investment with more intentionally programmatic or mission-aligned investment.

It says the proposed guidance should be reframed to reflect the difference between more intentional programmatic and mission-aligned investment as distinct from more general responsible investment approaches.

The regulator opened a consultation on its responsible investment guidance in April, after carrying out a listening exercise last year.

The consultation is looking for views on the clarity of draft revised guidance for charity trustees about adopting a responsible approach to investing their charity’s funds.

The ACF’s submission says the proposed guidance makes it clear that charities are able to “pursue responsible, programmatic and mission-focused investments in most circumstances”.

It says: “The more permissive tone is welcome, and should help to remove a degree of uncertainty for some trustees on what is already allowed.”

But it says some “fundamental problems” remain, including that the guidance is “implicitly pitching more general ‘responsible’ investment as an alternative choice to financial return, rather than a methodology for achieving it.

“This risks creating a false binary. Given the performance of responsible investments in recent years, no longer should the pursuit of financial return be in any way contradictory to being a ‘good citizen’ investor and investing responsibly.”

It goes on to say: “We believe that the commission’s investment guidance should be framed around the notion that responsible investing is expected, rather than something to be justified.

“Responsible investment should be a starting point for investment decisions, not an optional extra. It would make more sense that trustees should be required to justify investments that are not taking this approach.

A Charity Commission spokeswoman said: “We are pleased that ACF has responded to our consultation.

“We will consider the charity’s submission carefully, as we will all contributions to the consultation. We encourage other charities to have their say before the consultation ends on 20 May.”

To take part in the consultation or to find out more, click here.

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