Seb Elsworth: There's no excuse for ignoring the ethical and social impact of investments

The range of ethical, responsible and social products for charity investors is growing all the time

Seb Elsworth (Photograph: Claudia Leisinger)
Seb Elsworth (Photograph: Claudia Leisinger)

Last week was Good Money Week. Run by the UK Sustainable Investment and Finance Association, it’s a campaign to help grow and raise awareness of sustainable, responsible and ethical options for banking, pensions, savings and investments. The campaign included a series of events around the country, numerous case studies and resources to help people make choices about how to manage their money.

September also saw the launch of Charity Bank’s Follow the Money campaign, which challenges businesses, charities and people to think more about how they save and invest and the ethical and social impact of their choices.

The range of ethical, responsible and social products for investors is growing all the time as the finance industry seeks to catch up with the changing demands of savers, including charities.

But it can be a confusing landscape. Although charities should have an obvious reason for wanting to align the management of their money to social mission, and for wanting to avoid the significant reputational damage that can come when these are not aligned, many organisations are yet to take action.

For trustees in our sector, the best place to start is to think about what you are trying to achieve with your investments and to be clear about the constraints that apply.

The Impact Management Project is a very useful framework for considering what you are trying to achieve with your investments. It explains:

"Depending on their motivation, investors’ intentions range from broad commitments, such as ‘to mitigate risk’, ‘to achieve sustainable long-term financial performance’ or ‘to leave a positive mark on the world’, to more detailed objectives such as ‘to support a specific group of people, place, outcome’ or ‘to address a specific social or environmental challenge’. Each of these intentions relates to one of three types of impact: A, B or C."

In terms of understanding the constraints that apply to charity trustees, I’ve often heard a view that the sole objective of financial investments must be to maximise return so that as much money as possible can be put towards the charity’s mission. While that is of course an important consideration, according to the Charity Commission trustees should also consider environmental, social and governance factors when making judgements about the levels of risk and return that are right for them.

Indeed, in 2016 the commission published clarified guidance about the responsibilities for trustees when making investments and included more detail about the regulatory context of programme-related investments and mixed-motive investments.

Another common misconception is that it is all too hard, and that considering ethical and social factors in your investments will increase risk and reduce return. I’ve even heard this view from some asset managers who specialise in working with charities.

In reality there is now a very wide range of options and products for charity investors who want their money to do good, and a good asset manager can help find them for you. They just need to be asked, and sometimes asked again. A lack of investment products is not a constraint.

Other resources that might help to stimulate this debate among your trustees include: individual investment approaches and policies published by a number of foundations and others, which can be a useful resource; the Charities Responsible Investment Network, run by Share Action; the Social Impact Investors Network for Foundations, run by the Association of Charitable Foundations; Newton Investment Management’s recent Charity Investment Survey; and the excellent evaluation by New Philanthropy Capital of the impact of investments made by the KF Felicitas Foundation in the US.

Seb Elsworth is the chief executive of Access, a foundation that helps widen access to social investment for charities and social enterprises

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