Ethical investment


Universe Column for August 8th 2004

by David Alton

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 (SRI)has taken that impulse and turned it into corporate mission statements, government policies, and investment decisions. Ruskin would surely have approved.

One of the leading authorities on this issues, the Catholic writer,  Russell Sparkes,  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.  New laws now place a statutory obligation on  charities to do the same.

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. When charities fail to do this the results can be disastrous.

For instance, Campaign Against The Arms Trade decided 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 the past, SRI and ethical investment was often just another piece of public relations and window dressing: “nice to do”  rather than as a “must do activity”.  As people give to their favourite charities they should now be asking whether ethical and socially responsible investment is a core concern and a “must do” priority.

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