The Case for Responsible Investment
Adopting Responsible Investment could enable your charity to avoid conflict with your objectives and minimise risks to your reputation. It could help you avoid alienating supporters, staff or beneficiaries and use investments to further the work of your charity.
The main reasons for adopting Responsible Investment include:
Avoiding risks
to your reputation
Using investments to further the work of your charity
Avoiding
conflict with your charity’s aims
Using investments to influence company
behaviour
Concern about alienating supporters, beneficiaries and staff
Addressing
financially relevant social, environmental and ethical risks
Avoiding risks to your reputation
Being seen to invest in particular sectors or companies could damage the reputation of your charity and the public’s perception of your work. This could be a particular concern for fundraising charities. Over 40% of respondents to a 2001 NOP Survey for Charities Aid Foundation preferred to support charities that invest ethically. A further 14% said that they were only prepared to support charities investing in this way.
The Campaign Against Arms Trade has been critical of some charities in the past for their investments in arms companies, which has attracted negative publicity. Such pressure from campaign groups and charities may pose reputation risks for your charity and influence decisions regarding responsible investment.
The revised Charities' SORP now require charities to report on the extent to which they take social and environmental factors into account in their investment decisions. It will therefore be easier for interested parties to discover which charities do and do not have ethical policies.
Using investments to further the work of your charity
Investments could be used in a way that positively supports the work of your charity. For example, an environmental charity could invest in the renewable energy sector or a charity working to address poverty may invest in the microfinance sector. Such investments can also be known as mission-related investments and the balance between achieving financial and social/environmental returns can vary.
Avoiding conflict with your charity's aims
Particular investments could counter the aims of your charity - such as a cancer charity investing in tobacco companies. It is clear that such investments would be at odds with the charity's activities and purpose.
Using investments to influence company behaviour
You could use your rights of ownership and influence as a shareholder to engage with companies to seek to influence responsible business practices. For example, a human rights charity may engage with companies it invests in to discuss their involvement in particular countries.
Concern about alienating supporters, beneficiaries and staff
Particular investments could hamper the work of your charity by alienating your stakeholders. In some cases you may feel that particular investments could mean that potential beneficiaries would be unwilling to be helped, or staff morale could suffer.
Addressing financially-relevant social, environmental and ethical risks
Many social, environmental, ethical and corporate governance risks and opportunities are increasingly seen to be financially relevant and significant. Incorporating them into the investment process may therefore lead to superior long term performance.
The Principles for Responsible Investment, developed by the UN Environment Programme Finance Initiative and the UN Global Compact, recognise the growing view among investment professionals that environmental, social and corporate governance (ESG) issues can affect the performance of investment portfolios.
