Is Responsible Investment legal?

The simple answer is yes, within certain bounds. Trustees are required to invest to further the purposes of the charity. This is usually seen as being achieved by seeking the best return from investments at an acceptable level of risk. The Charity Commission recognises that an ethical investment policy may be entirely consistent with this.

Negative screening

The Charity Commission recognises three situations where the investment strategy can be governed by considerations other than level of investment return. These are where:

  • investment in a particular type of business would conflict with the charity's aims
  • an investment might hamper its work, either by making potential beneficiaries unwilling to be helped because of the source of the charity’s money, or by alienating supporters
  • even if an investment does not come into either of the previous two categories, trustees can accommodate the views of those who consider it to be inappropriate on moral grounds, provided that they are satisfied that this would not involve 'a risk of significant financial detriment'.

Engagement

The Commission recognises that a charity may wish to influence a company both to ensure that its business is conducted in the charity’s best financial interests and that its business does not conflict with the charity’s Responsible Investment policy.

Positive screening

The Commission provides no specific guidance on positive screening.

Social Investment

The Charity Commission does not consider social investment (or programme related investment) in the same way as SRI and charities should be aware of the separate guidance on this issue. Social investment is defined as investments which are “made directly in pursuit of the organisation’s charitable purposes. Although they can generate some financial return, the primary motivation for making them is not financial but the actual furtherance of the charity’s objects.” The normal rules on financial investments for example, in the Trustee Act 2000 do not apply to social investment. But the same duty of care applies to social investments as to grants. Trustees have the same basic responsibility to pursue the charity’s objects considering all relevant matters and seeking independent professional advice when appropriate.
Visit website: www.charity-commission.gov.uk

Reporting requirements

The revised reporting standards for charities, SORP 2005 require that, where material investments are held, trustees report on ‘the extent (if any) to which social, environmental or ethical considerations are taken into account’ within the investment policy.

Further information

For a more in-depth discussion of the legal aspects of Responsible Investment and the legal arguments for incorporating SEE issues into investments download the legal fact sheet.

Charity Commission CC14: Investment of Charitable Funds Basic principles (2004)
Visit website: www.charity-commission.gov.uk

Detailed guidance (2003)
Visit website: www.charitycommission.gov.uk

Accounting and Reporting by Charities: Statement of Recommended Practice (revised 2005)
Visit website: www.charitycommission.gov.uk

 

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