Translating your mission and objectives into a workable investment policy needn’t result in a long and detailed document. Adopting a broad approach might work for your organisation.
For a charity considering responsible investment for the first time there are a number of general steps that it is advisable to follow. These are:
- Gathering information
- Agreeing to move forward
- Developing a policy
- Implementing the policy
- Report and review
Setting out your charity’s overall values and objectives is a good starting point in a discussion around responsible investment, as the process is ultimately about linking your charity’s values with its investments. These values will be clear for most charities and be based upon your mission statement.
Your charity should already have agreed the financial objectives of your investment policy – for example, income levels and capital growth, acceptable levels of risk and asset allocation. These factors will influence how social, environmental or ethical considerations can be incorporated into your charity’s investment strategy.
Your charity should also try to define its reasons for adopting responsible investment. These objectives, for example avoiding risk to your reputation or particularly wanting to make mission-related investments, will help you to decide on the issues and approaches to implement.
The list of potential issues and/or impacts to consider can seem long. Common ones include the obvious such as tobacco, armaments, gambling and pornography. But as the range of options available in the market has widened, so too have the approaches and range of social, environmental and ethical issues that it is possible to incorporate. Your fund manager or investment adviser may be able to provide you with a list and sometimes these will be grouped in a thematic way. Your charity may wish to consult with its stakeholders (for example, staff, beneficiaries and supporters). This can be done on a formal or informal basis.
It is useful to consider which issues are of most importance to your charity and if any are ‘negotiable’. For example, if you would be willing to invest in the best performing companies within a particular sector rather than excluding the whole sector.
This will help you to decide on the approach to apply to your investments (negative screening, positive screening or engagement, investing to maximise social impact) and in the case of negative screening, whether you wish to set a materiality level on turnover – for example, avoiding companies that derive more than 10% of turnover from the sale of tobacco products rather than any company selling tobacco.
Research can show how the companies that your charity currently invests in would be affected if you applied screens on particular criteria. Research providers or your fund manager, may provide such information and help you understand how setting levels of materiality or specific criteria could impact on your investable universe. Adding too many restrictions may impact financial returns but this is not necessarily the case.
More detailed information about the 5 steps.