Opinion: Hot Issue - Should charities have to outline their ethical investment policy?

Jacqui Lait, Tory spokeswoman for civil society, said last week at a conference that trustees should not be required to publish an ethical investment policy, as the draft charities Sorp proposes.

YES - Andrew Wood, media co-ordinator, CAAT

Campaign Against Arms Trade has long argued for openness and transparency by charities. Public scrutiny ensures not only that charities are well run, but also that they live up to their duties to provide public benefit.

Increasingly, public bodies are being asked to account for their policies and practices. The notion of corporate social responsibility is gaining ground among commercial organisations, yet many charities are lagging behind.

CAAT's Clean Investment Campaign has scrutinised shareholder registers and revealed the bizarre spectre of charities whose aim is to preserve life and alleviate suffering holding shares in arms companies. Furthermore, charities hold substantial investments. According to the Charities Aid Foundation, the investments of the top 500 charities for 2002-2003 totalled about £5.5bn. Yet many charities do not have a stated investment policy, so it's up to campaign groups such as CAAT to expose charities' investment practices. Even today, Cancer Research UK refuses to disclose its investments to its supporters, except its boycott of tobacco investments.

Public scrutiny can help to ensure effective and ethical governance of charities, as CAAT has shown.

YES - Sophie Chapman, policy and campaigns officer, CFDG

Regardless of whether or not a charity has an ethical investment policy, it should report its stance and explain its reasons. Charities should be as accountable and as transparent to donors as possible.

The Charity Commission offers clear guidance on this. Trustees best serve the interests of the charity by maximising returns on investment. An ethical investment policy may be entirely consistent with this, especially if it faces a reputational risk through non-ethical investments.

We welcomed the Cabinet Office recommendations that charities should report on their investment policy, and the subsequent new guidelines for Sorp 2005. Whether people like it or not, ethical investment is a hot potato. There are campaigning organisations dedicated to encouraging ethical investment, and pieces appear frequently in the media. Charities should consider their reputation as well as the financial risks and be ready to answer questions and defend their stance. A lack of transparency can only damage a charity's reputation.

As long as they are observing the Charity Commission guidelines on this issue and obeying the law, why should charities feel they have something to hide?

YES - Charles Nall, corporate services director, Children's Society

Money held in reserves represents donors' funds awaiting expenditure, which should be spent to assist the charity's beneficiaries. Both donors and beneficiaries have a right to know that these funds are being used to fulfil the charity's objectives. At a time when charities are being called to demonstrate their effectiveness and trustworthiness, ethical investment policies should be available to those who want to know.

How should it be declared? Proportionality matters. Most charities do not exist to invest money. Investments are a prudent by-product of ensuring that the shocks of an uncertain world do the least harm to already vulnerable beneficiaries. So a charitable ethical investment policy should be a matter of good practice. To make it otherwise is another case of red tape run wild.

The Children's Society has an ethical investment policy. Following the principle of proportionality, it discloses this fact and an interested party can request it. The lesson for charities on this, as with so many other communication issues, is to get on to the front foot about effectiveness - if stakeholders are satisfied with this, marginal matters will be seen for what they are: marginal.

YES - Trevor James, head of the charities unit, Sheen Stickland, chartered accountants

It cannot be in the sector's best interests to throw a cloak of secrecy over an area of real interest to its supporters.

A charity should be prepared to explain and justify the ethical policies it applies when selecting its investments. Openness provides an opportunity to build trust.

In their innocence, many donors struggle to understand why a charity should hold reserves and, to some, investments are an anathema. Trustees who are not willing to explain their policies in their annual report should not be surprised if a whispering campaign questioning their wider stewardship starts to gather momentum. A charity should be willing to tell its supporters how funds are invested - after all, the audience will in many cases have made personal sacrifices to provide the funds.

Trustees that have a well thought-out ethical investment policy, whether it is a negative or positive approach, should be proud to share their vision. Let them explain what they are seeking to achieve and how they are doing it. Who knows where it might lead? It might spur others who have buried their heads in the sand on the whole question of socially responsible investment.

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