May 14, 2003
Do UK Charities' Investments Reflect Their Mission Statements?
by William Baue
A report released today reveals that the majority of large UK charities do not practice socially
It may seem like a no-brainer that charities and foundations with social or environmental missions
should invest their assets in socially and environmentally responsible ways. However, a report
covering the United Kingdom released today by Just Pensions, a consortium established by the development
charities Traidcraft and War on Want to promote socially responsible
investing (SRI), says not all such organizations do.
"I ask [charities], 'When you
rattle a tin on the street, are you practicing fraud?'" said Lee Coates, director of the Ethical Investors Group, a UK
investment advisor specializing in SRI. "If you have no caveat on what you will do with people's
money, then you could be obtaining it under false pretenses."
"Charity trustees will have
to be very brave to say 'as a social organization, we have no [SRI] policy,'" the report quotes Mr.
Coates as saying.
According to the report, entitled Do UK Charities Invest
Responsibly?, 60 percent of the charities surveyed (34 of 57) will need to steel themselves
for the task, as they have no written SRI or ethical investment policy. This ratio decreases to 36
percent when weighted by assets, as wealthier charities and foundations are more likely to employ
The report, which was co-published by Just Pensions, the Charities Aid Foundation (CAF), and the Ethical Investment Research Service (EIRIS), surveyed over 100 of
the UK's largest charities and foundations. The 57 that returned the questionnaire represent some
£18.7 billion in investments, or 40 percent of estimated total of £47 billion in charitable
investments in the UK.
"[E]ven when policies do exist they very often pay only lip
service to the full implications of SRI," said Lee Jones, finance director for the UK branch of the
Worldwide Fund for Nature (WWF),
whose progressive SRI strategies the report highlights. "This is not good enough."
23 charities with an explicit SRI policy, 22 employ the most basic of all SRI practices: negative
screening, or the avoidance of investing in companies with detrimental products or services, such
as tobacco or arms producers.
More sophisticated SRI practices, such as shareowner
action and positive screening, are much less common. Only 7 of the 23 charities actively vote on
shareowner resolutions at corporate annual general meetings, and 6 of 23 engage companies directly
in dialogue, a more active form of shareowner action. A mere 4 of 23 practice positive screening,
or prioritizing investment in companies with progressive social and environmental practices and
Transparency, one of the most basic tenets of responsible investment, is also
sorely lacking, as a majority of charities with written SRI policies (14 of 23) do not disclose
Of the 34 charities that do not have a written SRI policy, nearly a quarter (8)
considered SRI and rejected it.
"As our survey shows, the greatest single factor in
deterring charities from exploring SRI is the largely unfounded fear of lower returns," writes
report author Duncan Green, Just Pensions' head of research.
This fear flies in the face
of existing evidence. In February 2003, for example, the UK Charity Commission issued new guidance on charity
"An ethical investment policy may be entirely consistent with this
principle of seeking the best returns," the commission states. "For example, there is an
increasingly held view that companies which act in a socially responsible way are more likely to
flourish and to deliver the best long term balance between risk and return."
also cites a September 2002 review of charity law conducted by the UK Cabinet Office Strategy Unit that echoes this conclusion.
"Since ethical funds, on average, produce an economic return that is very similar to
non-ethical ones, this means that [charity] trustees are free to choose from a wide range of
ethical funds," the review states.
The report speculates that this governmental review
will lead to regulation requiring charities to report the degree to which they consider social,
environmental, and ethical (SEE) issues in investment decisions, as a July 2000 amendment to the
Pension Act requires UK pension funds to do.