The Charity Commission has re-issued guidance to charity trustees to end confusion over expectations for ethical or responsible investment.

Charity trustees had raised concerns over the clarity of the commission’s existing rules. Some said their overriding legal duty was to pursue maximum financial returns regardless of any other considerations.

The commission’s updated guidance makes clear that responsible investment is fully compatible with trustees’ other obligations. A charity may focus simultaneously on financial return and the alignment of investment decisions with its values.

The guidance provides examples of how this approach could be applied in practice.

Charities may apply negative screening, refusing to invest in certain activities that are at odds with their purpose. The commission suggests a health charity rejecting any investment in the tobacco or alcohol industries as one such example.

Positive screening, where a charity chooses to invest in activities directly supportive of its aims and values, is also encouraged. An environmental charity may actively choose to invest in renewable energy companies.

Responsible investing could also include using an investment for stakeholder activism and may also be appropriate for the general good of the charity. For example, a charity may reasonably judge that its reputation or ability to attract donations might be harmed if its investments are not ‘responsible’.

Special rules may apply to some charities, for example if they have a permanent endowment. The updated guidance outlines that even in these circumstances responsible investment may still be permissible.

The proposed re-wording of the guidance is now subject to public consultation. May 21 marks the deadline for Charities and other interested parties to give their views. The consultation is available here.

Last Updated: 16 April 2021
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