Frequently Asked Questions
On Responsible Investment
Q: What is responsible investment?
Q: Is responsible investment allowed?
Q: How will responsible investment affect financial returns?
Q: What is meant by positive screening, negative screening and engagement?
Q: What is programme related or mission related investment?
Q: What are the origins of Responsible Investment?
Q: Which charities have a Responsible Investment policy?
For charities
Q: Why should my charity invest responsibly?
Q: Where can I go for advice on Responsible Investment?
Q: Which fund managers provide Responsible Investment services
For service providers
Q: Why offer Responsible Investment services?
For supporters
Q: How can I find out if the charity I support invests responsibly?
Q: How can I encourage the charity I support to invest responsibly?
Can’t find the information you are looking for? See the site map or contact us with your questions.
What is Responsible Investment?
Responsible Investment is about aligning a charity’s investments with its mission. It is based on achieving the greatest impact from investments by both pursuing financial return and using investments for non-financial gain. It is about using investments to complement rather than counter a charity’s aims.
Responsible investment is often referred to as ethical or socially responsible investment (SRI).
There is no single model to Responsible Investment and no ‘one-size-fits all’ approach. . It encompasses a number of different approaches which can be used individually or in combination.
The approaches can be grouped under three headings;
- Positive screening involves investing where there is a commitment to responsible business practices, and/or positive products and services.
- Negative screening involves avoiding investments that do not meet the social, environmental or ethical (SEE) standards which a charity has set.
- Engagement is the process by which investors seek to maintain or improve corporate SEE or governance policy, management or performance.
Is responsible investment allowed?
Responsible investment is allowed, 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.
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’.
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.
For more information on the legal context for Responsible Investment see the legal issues page.
How will responsible investment affect financial returns?
All charities will be concerned that their investments provide good financial returns. There are now many years of practical experience demonstrating that ethical funds need not underperform. In fact a well-managed, balanced ethical portfolio can outperform its non-ethical peers.
The degree to which a particular Responsible Investment approach has a beneficial or a detrimental impact on performance will primarily rest with the skill of the fund manager and their team – and in particular their stock selection abilities.
For details of financial performance issues see the financial returns page.
What is meant by positive screening, negative screening and engagement?
Positive screening
Positive screening involves investing where there is a commitment to responsible business practices, and/or positive products and services. It is also known as support or preference.
Forms of positive screening include:
- investing in companies that sell positive products – for example educational material or essential necessities of life (food, clothing, electricity, water or housing)
- thematic investing – investing in specific areas such as environmental technology
- a best-in-class approach – favouring investments with best practice amongst sector peers. This approach allows sector balance within the investable universe.
Negative screening
Negative screening involves avoiding investments that do not meet the social, environmental or ethical (SEE) standards which a charity has set. It is also known as avoidance or exclusion.
There is no single correct approach to negative screening. The degree to which a particular behaviour is avoided will be determined by a charity’s policy.
Negative screening can involve avoiding investments in certain companies or sectors. In the case of government bonds it may also be possible to avoid investing in particular countries.
Investors can set materiality thresholds to determine which investments will be excluded – for example avoiding companies which derive more than 10% of turnover from gambling, rather than avoiding companies with any involvement in gambling. It is also possible to avoid the worst performing companies within a particular sector, for example those with the poorest human rights record.
The use of extensive screens reduces the investable universe, and a portfolio is generally rebalanced to take account of this.
Engagement
Engagement is the process by which investors seek to maintain or improve corporate social, environmental, ethical (SEE) or governance policy, management or performance.
Engagement usually involves:
- dialogue
- negotiation
- gentle (or firm) persuasion
Engagement can take the form of:
- informing companies how their actions will affect investment decisions
- encouraging and persuading them to improve certain policies and practices
- offering to help them formulate a policy or improve an approach to an issue of concern
Positive screening, negative screening and engagement can be used individually or in combination.
What is programme related or mission related investment?
Programme Related Investment (PRI), also known as social investment, refers to investments made primarily to further the aims of the charity. They seek a financial return but this can be concessionary and is not the primary motivation.
Mission related investment (MRI) emphasises the importance of the mission when developing the investment strategy. It is broadly similar to, and uses the same approaches as Socially Responsible Investment. However, MRI encompasses both market-rate and below market-rate investments.
What are the origins of Responsible Investment?
Dating back to the nineteenth century, Responsible Investment’s roots can be found among religious movements including the Quakers and Methodists, whose concerns included issues such as temperance and fair employment conditions. At the beginning of the 1900s, the Methodist Church began investing in the stock market, consciously avoiding companies involved in alcohol and gambling. During the twentieth century, more churches, charities and individuals began to take account of ethical criteria when making investment choices. Initially the US was more advanced in developing ethical investment and in 1971 the first "modern mutual" fund, the Pax World Fund, was set up which avoided investments associated with the Vietnam War. The apartheid regime in South Africa accelerated the promotion of ethical investment in the 1980s as well as growing concern over environmentally damaging activities. The UK’s first ethically screened unit trust, the Friends Provident Stewardship Fund, was launched in 1984.
More details of the development of SRI can be found on the UKSIF website.
Which charities have a Responsible Investment policy?
See the case studies section for details of charities that invest responsibly.
Why should my charity invest responsibly?
Responsible Investment may enable you to:
- avoid risks to your reputation
- use investments to further the work of your charity
- avoid conflict with your charity’s aims
- use investments to influence company behaviour
- prevent the alienation of supporters, beneficiaries and staff
- address financially relevant social, environmental and ethical
For more details of how Responsible Investment can achieve these benefits see why do it?
Where can I go for advice on Responsible Investment?
The Advisers section provides details of the SRI experience of a number of investment consultants who can help you take things forward.
Which fund managers provide Responsible Investment services?
The Database of funds and fund managers provides details of fund managers that can apply SRI criteria to segregated mandates or provide SRI pooled investment funds.
Why offer Responsible Investment services?
There are opportunities for advisers and fund managers to meet the growing demand for Responsible Investment services. Providing such services to charities may enable you to attract new business and retain existing clients.
Demand for Responsible Investment services
Responsible investment is growing. New ethical funds are being launched at an unprecedented rate. The Broad SRI market across Europe is now valued at over €1 trillion. Interest in Responsible Investment from the charity sector is also growing. A 2005 survey showed 55% of large charities had an ethical investment policy. This compares to a 2003 survey which found 40% of large charities had policies.
Demand for Responsible Investment services has traditionally focused on negative screening, but investors are increasingly looking to use positive screens and engagement too. It is likely that charities will look for service providers that understand a range of ethical issues and Responsible Investment approaches.
The key benefits of providing comprehensive Responsible Investment services could include:
- gain a competitive edge
- benefit from new market opportunities and win new business
- protect your client base
- enhance your professional profile
- improve your relationship with existing clients
- increase referrals
- gain new marketing opportunities
- improve product persistency rates
For more information on these issues see the why do it page.
How can I find out if the charity I support invests responsibly?
Charity trustees are required to report on ‘the extent (if any) to which social, environmental or ethical (SEE) considerations are taken into account’ within the investment policy. It should therefore be possible to determine whether a charity has a Responsible Investment policy from its annual report. Annual reports are usually available from a charity’s own website, or they can be accessed through the Charity Commission and Guidestar websites.
The Intelligent Giving website also indicates if a charity has an ethical investment policy.
The level of transparency and disclosure regarding investments varies. If you find there is insufficient detail in an annual report on the SEE issues considered in investments, and how this is done, you could contact the charity directly for more information. Trustees are ultimately responsible for investment decisions, but the head of finance should be able to help. But charities are not obliged to provide detailed information on their investment policy.
How can I encourage the charity I support to invest responsibly?
If you discover that the charity you support does not invest responsibly, or feel that its approach to Responsible Investment is inadequate, you could engage with the charity to encourage it to adopt an appropriate `Responsible Investment policy.
1. Gather information on Responsible Investment Before contacting a charity you may find it useful to gather information about Responsible Investment from elsewhere on this website. This will enable you to understand what a charity is legally able to do in terms of its investments and to build a convincing argument for the adoption of Responsible Investment.
2 . Contact the charity You could write to the charity’s trustees, who are responsible for investment decisions. The names of trustees can be found on the Charity Commission website. You could contact the charity to find who the chair of the trustees is and who sits on the investment committee.
Alternatively you can write to the finance director or chief executive. Other staff members, such as supporter services or fundraising staff, may also be interested to hear your concerns. They can then bring up the topic with fellow staff and trustees.
You may wish to use your letter or email to:
- state your interest/involvement with the charity (e.g. donor, member)
- explain why you think the charity should consider social, environmental and/or ethical issues in its investments
- highlight areas where you think investments could be contradicting the work or objectives of the charity, or that could cause potential damage to its reputation
- highlight ways in which the charity could further its mission through its investments, for example through some positive screening or engagement approaches
- ask a question that requires a reply to your letter – e.g. what action do they intend to take?
If you do not receive a satisfactory response you may wish to write back and continue the dialogue. Some campaigning groups believe that a more lengthy correspondence can be more effective in encouraging change than one letter.
3. Contact other supporters You may want to raise the issue of Responsible Investment with other supporters of the charity and gain their support. Large charities may have a supporters newsletter or supporter meetings which you could use to raise the issue and encourage others to contact the charity.
4. Contact campaigning groups If you are concerned about a particular issue, such as access to medicines in developing countries or nuclear power, it may be useful to contact charities that campaign on the issue to find out more about the subject, its implication for investments and how you can best raise it with the charity you support.
Can’t find the information you are looking for? See the site map or contact us with your questions.
