Investing to advance your charity's mission

Mission-connected investment offers the chance to improve returns by helping good causes, but few charities use the model. Joe Lepper asks why.

Choosing the right investment strategy is a careful balancing act. Charities have a duty to maximise their profits, but they also have the opportunity to invest in projects that support their causes, even if such mission-connected investment does not always offer the best financial rewards.

Stephen Pittam, trust secretary at the Joseph Rowntree Charitable Trust, says charities that have not yet considered MCI are missing out. The trust has developed a strategy that, according to Pittam, successfully combines some investments that are potentially lucrative and others that are mission-focused. Pittam says the bulk of its investments are with mainstream companies, which are screened for unethical activity and offer high returns. This financial security enables the trust then to seek out other, less lucrative investments that are more directly related to principles of social justice.

The trust's MCI includes investments in organisations such as h2OPE, which renovates river weirs to generate electricity, and the Ethical Property Company, which develops property for charities to use. "Investing in the Ethical Property Company is a double hit for us," says Pittam. "Many of the organisations we support through grants also use its property."

Eilis Lawlor, head of the Valuing What Matters programme at the New Economics Foundation, which produced a report on MCI called Mission Possible in 2006, says the trust's strategy is an effective way of being more innovative with investments. "It makes sense to use its portfolio to make a difference and bring in a good financial return," she says.

But few charities are as innovative. A key point made in the Mission Possible report was that many charities were reluctant to move away from the security of mainstream investing. David Membrey, acting chief executive of the Charity Finance Directors' Group, says that this is still the case four years on. "MCI is still quite a new concept," he says. "I can understand why charity trustees are afraid of it, though. They are traditionally risk-averse concerning money."

Pittam says a lack of MCI options is another factor in the slow take-up. "As a social justice charity, we have really struggled to find investments," he says. "There are housing investment opportunities out there, but that's not a specific area for us."

One emerging avenue for trusts and foundations is to invest in funds set up to support the charity sector. The Charities Aid Foundation, for example, runs the social investment fund Venturesome. Investors in this include the Esmee Fairbairn Foundation, which last November increased its investment in the fund to £1.8m. Membrey hopes that more "interesting and effective" opportunities such as Venturesome will emerge.

Another option, particularly for smaller charities, is to use ethical investment funds that focus on stocks with a strong social, moral or environmental agenda. Amanda Young, socially responsible investment officer at asset management firm Newton, which specialises in MCI, says: "It takes a lot of time and money to ensure that your investments are in line with your mission, so it makes sense for smaller charities to use an investment fund to do that for them."

The Joseph Rowntree Charitable Trust does not use such investment funds. Instead, through its investment managers, it spends time ensuring that its main investments are as mission-focused as possible. These investments are subject to quarterly ethical screening, and the trust works with companies to address any unethical practices that emerge. Earlier this year, for example, the trust sold its shares in the mining firm Vedanta after discussions about its treatment of indigenous people in India ended in stalemate.

Helen Wildsmith, head of ethical and responsible investment at CCLA Investment Management, which manages investments for charities including the Church Investors Group, says that such engagement with companies can often be more effective if investors work together. "Engaging with companies about tricky human rights issues or tackling systemic risks such as climate change is usually easier if you are collaborating with others," she says.

She adds that the Church Investors Group, which represents churches in the UK and Ireland and has combined assets of about £12.6bn, is a good example of charities working together to use their considerable combined financial power to improve company practice.

Young adds a final warning to charities that are not yet involved in MCI: "Charities have a reputation to consider and should be asking themselves what the long-term damage to that could be if they are not considering more mission-focused investment opportunities."

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