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Responsible investment relates to investment and finance that considers environmental, social and governance (ESG) factors. For charities, it is also about aligning a charity’s investments and products with its aims, mission and public benefit requirement. The process for achieving this can begin in various different ways, depending on the size, type and needs of a charity.

What is responsible investment?

Responsible investment can seem like a complicated concept. We use this as an umbrella term to mean the consideration of environmental, social and governance factors in investment decisions. Ethical investment, sustainable investment, social investment and impact investment are other terms that you may come across when discussing this area. At its core, this is about what is being done with the money your organisation saves and invests. It is useful to start with the basics and for many charities this will begin with a discussion about values, mission and charitable objectives and include having a basic overview of what responsible investment can entail.

The PRI’s (Principles for Responsible Investment) ‘Introduction to Responsible Investment‘ is a useful collection of articles to help individuals and organisations understand the general concepts.

A policy is a very good place to start

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: 

  1. Gathering information
  2. Agreeing to move forward 
  3. Developing a policy 
  4. Implementing the policy
  5. 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.

It's not just about investments

Responsible investment has sometimes been considered an issue for only the larger charities, those with considerable amounts of investable capital. However, increasingly charities of all sizes have begun to think of how their choice of all financial providers can be aligned with their charitable objectives and values. Extending social, ethical and environmental considerations to your organisation’s choice of bank account, savings accounts, employee pension fund and donors or corporate partners is all part of thinking about how your charity can help positively influence the financial system and contribute to your charitable mission and objectives. Read more about applying this thinking beyond your investments. 

Advice and support from others

One of the benefits of heightened interest and demand for responsible investment is the wealth of resources and useful case studies now available for those looking for more information. In the simplest terms, if other charities are successfully adopting robust, demonstrably impactful responsible and sustainable investment strategies without financial detriment, why wouldn’t this approach be adopted by all charities in a position to do so? Learning from other organisations and using objective resources produced by, amongst others, the EIRIS Foundation, Friends Provident Foundation, ShareAction, the Association of Charitable Foundations, the Impact Investment Institute and UKSIF, can help those charities looking for their own way forward.

For more specific advice and information visit the ‘Tailored Advice and Case Studies‘ section of this website.

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