The divestment debate: is it time for charities to leave fossils in the past?

As Comic Relief becomes the latest charity to formally pledge not to invest in fossil fuels, Rebecca Cooney asks whether other charities should consider doing the same thing

Comic Relief’s latest accounts and annual report, published in December, reveal a new policy for the charity’s investment portfolio: that trustees "will not sanction an investment in companies whose primary business is the extraction or manufacture of fossil fuels without reason that is aligned with the organisation’s charitable purpose".

The board officially adopted the policy in September last year, but the charity has been avoiding investment in fossil fuels since 2017, director of finance Mark Wilding told Third Sector, adding: "The time was right to make a positive statement about not actually making any investment in fossil fuel companies."

The charity’s investments, which fund its operations so it can put all public donations into grant-making activities, have been in the spotlight before: in 2013, a BBC Panorama documentary criticised the charity for investing in arms, alcohol and tobacco.

In some ways, says Ruth Davison, the charity’s interim chief executive, this was a blessing because it forced the charity to act on its investment strategy earlier than others. Although the charity hasn’t spoken about it publicly because it wanted to see the results, she says, the outcomes have been positive: the 2018/19 accounts showed £13.2m of gains on investments, up from £11.3m in 2014/15.

Davison says this demonstrates that charities "can make more money doing the right thing, investing ethically and responsibly, than they can by investing in things that perhaps we’ve seen in the past as a necessary evil". And other sector experts believe an increasing number of charities and not-for-profits are beginning to align with this view.

Coleman Long, investment director at the investment firm Cambridge Associates, which advises Comic Relief and other charities, says he can’t remember a single client in the past two years that did not mention environmental, social or governance issues when discussing investment preferences.

"Historically, for charity investment committees there was an opposition to any kind of restriction that would limit your opportunities, because that might hurt returns and mean you had less money to do social good with," he says.

As fossil fuel companies represented a much bigger portion of the market than the traditional problem areas such as arms and tobacco firms, he says, they were also much harder to avoid while maintaining a healthy return.

But as the global climate crisis has moved up the political agenda and into public consciousness, the campaign to encourage institutions to divest from fossil fuel companies has gained momentum. According to a report from the climate change campaign group, the global number of institutional investors committed to cutting fossil fuel stocks from their portfolios has risen from 180 investors with $52bn worth of assets in 2014 to more than 1,100 with $11tn in assets in 2019.

Lily Tomson, head of networks at the responsible investment charity ShareAction, says charities seek to divest fossil fuel stocks in part because it can improve their reputation. "Charities are increasingly deciding that there
is a reputational risk in being seen to do nothing," she says.

Carving out a stance is vital, she adds. Some charities might choose to maintain a few shares in fossil fuel companies in an effort to influence the companies for the better, but even this is better than not having a policy at all.

There is, of course, a cost for making the decision to divest: the National Trust, which announced plans to divest from all fossil fuel investment in July last year, will lose £45m worth of investments from organisations including BP, Total and the mining company Glencore. But Long says that as the divestment movement has picked up pace, the financial services industry has reacted by introducing more high-quality investment funds that avoid fossil fuels, so charities no longer have to compromise on profit.

Any charity thinking about moving away from fossil fuel investments, he says, should consider the charity’s existing position. "Comic Relief didn’t have any exposure, but for those in a traditional index fund or a diversified portfolio you’re likely to have some," he says. "Give yourself time. It’s about the direction of travel rather than selling your shares at once. Wait for the best products to come to you."

The next step for Comic Relief, Davison says, has been to consider how it can use its investments to actively support its mission, through offering financing to social enterprises whose values align with its own, for example. "We’re moving beyond ‘do no harm’ to ‘how can we do good?’" she says.

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