Finance News: Charities urged to embrace SRI

Morley Fund Management is launching a campaign today to encourage charities to buy into socially responsible investment.

The firm has written to 11,000 UK charities with the message that investing with socially responsible principles does not mean sacrificing returns.

But it is also warning that if charities do not take social, environment and ethical issues into account voluntarily, the Government will bring in legislation to enforce adoption of SRI.

Melissa Gamble, company analyst with Morley, said: "Charities need to consider SRI because organisations that fail to take account of where their assets are invested may find themselves open to reputation risks.

Increasing pressure to disclose investment policies and good returns are encouraging more charities to consider SRI."

According to the UK Social Investment Forum, 60 per cent of the largest charities do not have a written ethical or socially responsible policy.

Of those with policies, only 30 per cent use their shareholder votes at AGMs, and only 26 per cent have direct engagement with the companies they invest in.

But the revised Sorp, due to be published later this month, will include a requirement for charities with income of more than £1m to state their stance on ethical investment in their annual reports. The Government has also said it is reviewing the efficacy of existing legislation requiring pension funds to make the same disclosure. That will influence the demands that are made on charities.

According to Morley, returns from its SRI UK equity funds were all in the top performance quartile in 2003. "Investing in a socially responsible way is now recognised as a sensible medium to long-term investment strategy," said Gamble. "It is important to remember that the fiduciary duty of trustees must be balanced with the objectives of a charity."

But Charles Mesquita, charities specialist with Carr Sheppards Crosthwaite, said that ethical investment for charities was more complicated than it appeared.

"Charities should invest where they can and when they have sufficient funds along the lines of their charitable objectives," he said. "But you could be opening a Pandora's box and the deeper you go down the more complicated it becomes.

"Investment is important but it is not the purpose of a charity. Trustees have an obligation to achieve the best return on their investment, and ethical investment just adds another level of complication."

According to the Charity Commission's guidance on ethical investment, revised in February last year, "trustees are free to adopt any ethical investment policy which they reasonably believe will provide the best balance of risk and reward for their charity".

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