The Impact Investing Institute is very pleased to see the Charity Commission encourage charity trustees to consider whether their investments are informed by and consistent with their charity’s purposes and values (see this blog by Sian Hawkrigg, Strategic Policy Advisor on behalf of the Commission).
Recently it has become much more widely understood that all investments have an impact on society and the environment, and to many it may seem inappropriate for a charity which exists for public benefit to invest in companies that generate negative social and environmental impacts. As the Commission notes, “we are all – as donors, beneficiaries, tax-payers – increasingly interested not just in what a charity achieves, but how it behaves along the way.”
The natural concern of trustees is that divesting from companies that create negative impacts might have the potential to prejudice the investment returns that the charity needs to generate to support its objects. But Ms. Hawkrigg notes, on the contrary, that “it is increasingly prudent for trustees to consider the factors affecting the longer-term financial sustainability of their investments”. The trustees or their advisors may well take the view that the longer-term financial sustainability of companies is undermined when they are known to create negative impacts and that a prudent investment strategy would mitigate these risks.
We agree. Asset managers are increasingly coming to the belief that a sustainable investment strategy that avoids companies harming society or the environment, and embraces companies that are pursuing growth areas focused on providing solutions to the planet’s problems, has every chance of matching conventional portfolios, and might even do better over the long run, especially as the focus on the impact of business on society and the environment intensifies.
In parallel, a coalition of charities, supported by legal firm Bates Wells, is seeking a court declaration to clarify the stance trustees should take with regard to investments that have a negative impact. Their argument is that the 1991 Bishop of Oxford case, the key case on the question of charity trustee investment duties, obliges trustees to avoid investments that conflict with their charitable objects. That might mean that trustees are not only allowed to avoid certain investments, but may be expected to do so. A court judgement should help to clarify the legal duties and powers of trustees.
The Charity Commission blog also invites interested parties to share their views with the Commission (end date: 31 March). We encourage all of our stakeholders who have a view to communicate their perspective to the Commission.