by Robert Jobson
The recent Panorama programme will have made the Comic Relief trustees very uncomfortable with their investment strategy coming under public scrutiny. They have been exposed as having invested in tobacco, arms and alcohol companies which goes against their ethos.
Whilst this may at first seem alarming, charity trustees do have a duty to invest their funds for the best return as that is clearly in the best financial interests of the charity. Panorama raised the question of whether charity trustees are obliged to consider ethical investments?
The Charity Commission does provide guidance to charity trustees on investing funds and it confirms that they can invest in ethical funds but that they are not obliged to do so. It also states that if the charity decides to invest ethically then it must be able to justify why it is in the charity’s best interests to invest in this way.
Fundamentally, the charity’s trustees’ duty is to maximise investment return so that the charity’s objectives can be met from the funds it raises.
I understand that Comic Relief invested in a range of managed funds under the advice of qualified investment advisers and managers. Those managed funds were invested in a spread of investments that included companies in the tobacco, arms and alcohol sectors. Apparently no more than 5% of the funds were invested in these unethical sectors. It is therefore unlikely that the charity had made “direct” investments in specific unethical companies.
A few points arise:
However, whilst it is true to say that charities are not obliged to invest ethically, one of the key concerns faced by large charities such as Comic Relief (which have a very public face) is understandably to do the right thing in order to keep the trust and faith of the public. That desire to maintain reputation has to be weighed against the investment policy.
There are ethically invested managed funds available to charity trustees and these need to be considered alongside other managed funds.
Charity trustees must always seek the best return and set an investment policy which matches their objectives. If they decide to invest ethically they need to be able to justify that investment policy to their stakeholders via their annual report. This is particularly important if the ethical investment performance does not match the performance of investments under a comparative non-ethical investment policy.
Comic Relief’s Panorama experience has exposed the difficulties at the heart of charity investment management and the need to balance investment performance with the charity’s ethos. It also shows why it is essential that charities develop a robust investment policy and that the trustees seek advice from expert investment managers.