Step 3: Develop a policy

The third step is about helping a charity to translate its mission and objectives into a workable investment policy. It requires the charity to agree the approach it will take to Responsible Investment and the issues it wishes to consider.

The policy does not necessarily have to be a long and detailed document and its content will depend upon the size and sophistication of the charity’s investments.

A Responsible Investment policy can be a stand-alone document, but it may be preferable for the elements below to be incorporated into a charity’s overall investment policy. The latter would therefore include both financial and SEE objectives.

Charities may need advice and guidance to help them develop a policy.

A policy could include the following elements:

1. The charity’s overall social, environmental and ethical aims and values

Setting out the charity’s overall values and objectives is a good starting point for a discussion of Responsible Investment, as the process is ultimately about linking the charity’s values with its investments. These values will be clear for most charities and be based upon the mission statement.

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2. Investment objectives

The charity should already have agreed the financial objectives of its investment policy – for example, income levels and capital growth, acceptable levels of risk and asset allocation. It may be useful to explain to the charity how these factors will influence how social, environmental or ethical considerations can be incorporated into its investment strategy.

The charity should also have defined its reasons for adopting Responsible Investment (as described in step 2). These objectives, for example avoiding risk to reputation, will be important in deciding on the issues and approaches to implement.

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3. Social, environmental and ethical considerations

The charity needs to decide how its mission could best be reflected in its investments. It may need your help in considering which social, environmental and ethical issues best fit with its aims and values, and which it will incorporate into investments.

The following resources may be useful:

  • the ethical issues section gives details of the most common issues considered by charities. It is not an exclusive list but may help when discussing the issues that are most important and relevant for the charity.
  • the charity may wish to consult with its stakeholders (for example, staff, beneficiaries and supporters). This can be done on a formal or informal basis. The charity may need assistance in developing the scope, format and questions for a consultation.
  • the legal issues section provides guidance on the scope for incorporating SEE issues into investments.

The charity may need guidance when considering which issues are of most importance and if any are ‘negotiable’. For example, if the charity would be willing to invest in the best performing companies within a particular sector rather than excluding the whole sector.

This will help the charity to decide on the approach to apply to its investments (negative screening, positive screening or engagement) and in the case of negative screening, whether the charity wishes 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.

It may be useful to provide research which shows how the companies that the charity currently invests in would be affected if it applied screens on particular SEE criteria. Research providers such as EIRIS or Ethical Screening, or fund managers, may provide such information. This will help the charity understand how setting levels of materiality or specific criteria could impact on the investable universe. Adding too many restrictions could impact financial returns.

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4. Approach to positive and negative screening, engagement and voting

Charities may need assistance in deciding which approach(es) to adopt and how they should consider factors such as:

  • the aims set for Responsible Investment
  • the SEE issues it wishes to consider – some will be more suited to a particular approach
  • the investment options available – for example, some asset classes (such as venture capital) may be more suited to positive than negative screening.
  • the resources available

For example a fundraising charity with narrow objects, such as animal welfare, may decide that negative screening is appropriate because it fits with its objects, manages reputational risk and is cost-effective.

More details of the approaches can be found in SRI strategies

Other important elements of a Responsible Investment policy are:

5. Process for making decisions and implementing policy

6. Transparency and disclosure

7. Process for reviewing and monitoring policy

Guidance on these issues is provided in steps 4 and 5.

> Step 4

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