Why sustainable investing is a great option for the charitable sector
For charities, money is the fuel for doing good, but could funds be working harder for positive change?
The pandemic undeniably challenged the way that charities work. With cancelled events and reduced face-to-face fundraising, it required creative approaches to keep the vital funds coming in. A Charities Aid Foundation report found that whilst donation levels have been good, sponsorship fell, particularly hitting some charities.1 This was at a time when 60% more people were dependent on charity donations. 2
With economic challenges and stretched public services, the charitable sector is more important than ever. It has the power to make real difference to all areas of society, from the environment to medical research.
But what if your charity could contribute to positive change even while your team are sleeping? Read on to find out how your cash reserves could work harder…
The importance of reserves
The Charity Commission advises on the importance of maintaining cash reserves, that is unrestricted funds that may be accessed, so that the charity is resilient to future challenges such as a drop in income, the demands of a new project or indeed a global crisis. 3
All charities need to have a policy explaining their approach to reserves and part of the role of trustees is to ensure the charity’s funds are carefully invested. This means acting in a prudent and responsible manner, whilst seeking the best possible returns in line with an agreed approach to investment risk.
But how risky should you be with charity money? That is something an advisor will help you establish and depends on factors such as how long the money might be invested for, whether there is a short-term need for income or a requirement for capital growth for the longer term.
Your investments can do good too
The Charity Commission’s guidance on investing for charities 4 highlights the importance of considering how suitable an investment is for the charity and states that investing ethically or sustainably means “investing in a way that reflects a charity’s values and ethos and does not run counter to its aims.”
It is worth noting that the government has just completed a consultation on how to make guidance clearer on ethical and responsible investment. 5 In the summary of evidence, it is stated that 20% of charity respondents and 28.5% of adviser respondents said that the Commission, as regulator, should place a positive expectation on investor charities to consider the wider impact of their investment approach. In these comments, there was a particular focus on the impact of climate change. Furthermore, on reading the new draft guidance, 84% of charity respondents to the survey said they were confident that adopting a responsible investment approach is a valid option. 6
It seems highly likely that the guidance will be updated to place new emphasis on the value of responsible investment choices for the charitable sector. From a Holden & Partners perspective, we believe it is possible to invest effectively, for growth, without compromising on ethics, sustainability or how a company is run. 7
Looking at impact
There are various factors to consider when investing ethically and sustainably.
Firstly, there is an approach known as negative screening, which is essentially what you want to avoid investing in. That might include areas at odds with your charity’s beliefs and goals, such as animal testing, armaments, oil and gas, gambling, or pornography.
Secondly, is positive screening – that is actively choosing to invest in companies or funds that enhance society or the environment, as well as having higher environmental, social and governance (ESG) factors relative to their peers. This is where it gets really interesting because your money can actively contribute to exciting, transformative projects happening around the globe. For an example, have a look at our case study on H&P Sustainable Balanced portfolio of investments, which shows how it supports United Nations Sustainable Development Goals (page 12).
How Holden & Partners can help
We have a wealth of experience in delivering coherent and well-defined charity investment strategies for trustees and their charities. Using our model investment portfolios, we will agree a bespoke investment strategy with you, where the objective is to grow the charitable assets in a tax-efficient manner, in line with your charitable and financial objectives.
Where there is an externally appointed investment manager, we will assist you in undertaking appropriate due diligence, monitoring of investment performance, delivery of required income and adherence to the agreed tolerance for risk within any negative or positive screening requirements.
We will work alongside your other professional advisers in delivering our ethical and sustainable investment solution and will monitor progress with you, to ensure your requirements continue to be met.
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Please note that any thresholds, allowances, percentage rates and tax legislation stated may change in the future. The content of this communication is for your general information and use only; it is not intended to address your particular requirements. This communication should not be deemed to be, or constitute, advice. You should not take any action without having spoken with your usual adviser.
1. UK Giving 2020 | Largest charity giving study in the UK | CAF (cafonline.org)
2. Pandemic sees 60% more people dependent on charity donations – UK Fundraising
3. Charity reserves: building resilience (CC19) – GOV.UK (www.gov.uk)
4. Charities and investment matters: a guide for trustees (CC14) – GOV.UK (www.gov.uk)
5. Charity responsible investment guidance – GOV.UK (www.gov.uk)
6. Summary of consultation responses. – GOV.UK (www.gov.uk)
7. The value of investments can fall as well as rise. You may not get back what you invest. Past performance is not a reliable indicator of future results.