A Wake Up Call For Executives And Trustees


John Ruskin once wrote that “a nation cannot last as a money making mob.” Most of us would concur with that view and would want to see wealth used ethically and creatively.  The movement in favour of the ethical use of money and socially responsible investment has taken that impulse and turned it into corporate mission statements, government policies, and investment decisions. Ruskin would surely have approved.

Throughout the 1990s a range of organisations campaigned for this change to come about. The Ethical Investment Research Service (EIRIS) and the UK Social Investment Forum – through their “Tomorrow’s Company” campaign deserve to be mentioned in despatches but so do those charities and pressure groups who have been involved in promoting a combination of ethical consumerism and disinvestment campaigns. And so do singular individuals, such as Russell Sparkes, whose authoritative writing on these issues has given the argument clear definition.  Russell cogently demolishes the myth that investing ethically and acting in a socially responsible manner is incompatible with good business returns. Indeed, the reverse is often true.

There is no doubt that many more companies and institutions do now routinely consider their responsibility to their stakeholders and the wider community.

Yet there still remains a gap between the impulse and the practice, the rhetoric and the reality.

We all know that SRI can very easily become just another piece of public relations and window dressing; that, as Stuart McGreevy has argued, it can be seen as a “nice to do” rather than as a “must do activity”.  That would be to misunderstand both the public mood and the new legal obligations that no longer leave SRI as an optional extra.

This is especially true for those of us involved in charities and non-governmental voluntary organisations.  I speak to you today as someone who is himself a trustee and patron of several charities: and therefore acutely aware of the conflicting pressures, priorities and competing demands that those who run charities have to face.

Yet, for the reasons I will adumbrate it would be a huge error to leave SRI compliance as a subsidiary issue relegated to the backwaters of long agendas.   Nor is it an issue that can be abdicated to the fund manager with trustees washing their hands of their own responsibility to ensure SRI compliance. The Trustee Act and Charity Commissioners now impose a duty on charities to include ethical as well as financial considerations with their standard investment criteria. Yet, this time last year, some 60% of the UK’s top 100 charities still had no written ethical or socially responsible investment policy, and two thirds of those were unable to say what plans they had to address the issue.

Because of the new statutory obligations every trustee needs to know how SRI impacts the objects of their charity: they need to appraise investment performance, legal obligations, the moral standpoint, compliance obligations and risk management.

Trustees have to lead on this issue by example – and also consider carefully the implications of not doing so. On the down side, a failure to engage properly in SRI will back-fire on disengaged charities, and will jeopardise their reputations, standing, donations and goodwill.

Many of you will have followed the recent debate about the decision of Campaign Against The Arms Trade to name 63 charities who own shares in arms exporters. These include major players in the charity world, including Cancer Research UK , the MS Society and the RNLI.

It was deeply revealing to hear the explanation given by the MS Society: “We never made a conscious decision to invest in the arms trade. We simply have a discretionary portfolio which means that our fund managers decide our investments for us. We can’t exclude any investment because our constitution doesn’t allow us to.”

Another charity said: “We don’t knowingly invest in any shares. Our investment managers manage our portfolio to the returns that we want, but how they invest it is down to them.”

But is it?

And can trustees any longer legitimately try to pass the buck?

In the past trustees have simply cited their fiduciary duty to get the best possible returns. But times and the laws have changed.

Sophie Chapman, speaking on behalf of the Charity Finance Directors’ Group says that “The Charity Commission now accepts that an ethical investment policy may be entirely consistent with the principle of seeking the best returns. For instance, trustees may be of the view that companies that adhere to ethical criteria are less risky and will perform better in the long term.”

In fact, Charity Commission guidance quite specifically permits a charity to exclude investments that “might hamper its work by making potential beneficiaries unwilling to be helped because of the source of the charity’s money or by alienating supporters.”

Failure to take SRI seriously can become a public relations disaster. For instance, following Campaign Against The Arms Trade’s disclosure about RNLI, the agency who organise al of their street fundraising, Dialogue Direct, have terminated their contract with RNLI.

The RSPB also fell foul – if I can use that phrase – of a decision to invest in a company responsible for an oil spill that killed thousands of birds.

I was recently in correspondence with a major national charity who have been leading calls for disinvestment in The Sudan while some of their own pension fund investments are tied up with major interests in that country. Clearly this is extremely damaging for a charity’s reputation and, of course, donors may well move their donations to other charities if they feel aggrieved.

Nor is the old shibboleth about SRI producing far lower returns true.  Half of Barnardo’s pension fund has been invested ethically since 1999 when the charity introduced changes to its general investment policy. Their finance director says: “We monitor the returns carefully and it’s actually been running slightly ahead of the market as a whole.” A 2002 report by West LB Panmure into the SRI market found that there was no sign of “systematic performance disadvantage.” Richard Stroud, the Chief Executive of The Pensions Trust adds: “Trustees must recognise ethical investment will give a different – which isn’t to say worse – return than conventional funds.”

For today’s discussion Stuart has identified six key barriers which have stood in the way of pushing SRI up the charity agenda. I hope that what I have said this morning helps to overcome some of the barriers and reinforces the urgency of taking SRI seriously.

If, as John Ruskin put it, our only interest is in being “a money making mob”, it will diminish the vitality of the charity, disillusion supporters, and be significantly out of step with the mood of most people in this country.

Thank you.