The Charity Commission’s updated guidance on Investing Charity Money came into effect last year on 1 August 2023, following the outcome of the Butler-Sloss legal case in 2022. Two charitable grant-making trusts brought the case to seek confirmation that their trustee boards were not overstepping their legal rights and responsibilities by aligning the trusts’ investment policies with their mission.
The guidance reflects the outcome of this case detailing changes in the legal and regulatory framework for charities and investments. The new guidance is clear that the main duty of trustees’ is to advance the charity’s mission and purpose. This means that they should make investment decisions that support their charitable objectives and are in the best interest of the charity, whilst following their legal duties.
Whilst the new guidance avoids using terms such as ‘responsible investments’ or ‘ethical investments’, and it sets out some examples of approaches to investing including reference to Environmental, Social and Governance (ESG) factors. Charitable organisations are increasingly turning to sustainable impact investments and by integrating ESG factors into investment decisions, organisations can generate financial returns whilst making a positive impact on society and the planet.
Sustainable impact investing involves investing capital in a way that generates positive social and environmental outcomes alongside financial returns. Unlike traditional investing, which prioritises returns above all else, sustainable impact investing considers a broader set of criteria to assess the long-term viability and social implications of investments. By aligning their portfolios with their purpose and values, charitable organisations can leverage their financial resources to drive meaningful change in areas such as renewable energy, affordable housing, healthcare, education and community development.
Benefits of sustainable impact investing for charitable organisations
Alignment with its purpose: By investing in companies and projects that align with their purpose, charities can amplify their impact and advance their core objectives.
Risk mitigation: Integrating ESG factors into investment analysis helps mitigate risks associated with environmental and social issues, safeguarding the long-term financial sustainability of charitable organisations.
Enhanced engagement with potential donors: Adopting sustainable investing practices can attract socially conscious donors who seek to support organisations committed to ethical and responsible stewardship when it comes to their investment strategies.
Financial performance: Contrary to the misconception that sustainable investing sacrifices returns, numerous studies have shown that integrating ESG considerations can lead to competitive financial performance over the long term. There will be less and less demand for shares in companies with poor ESG credentials, which will impact future share prices as well as the financial performance of the companies themselves.
Strategies for sustainable impact investing
Screening: Charitable organisations can screen out investments in industries or companies that conflict with their values, such as fossil fuels, tobacco, weapons manufacturing, gambling, alcohol and high interest lending.
Positive selection: Identifying and investing in companies that demonstrate strong ESG performance and contribute positively to society and the environment.
Thematic investing: Targeting investments in specific themes or sectors aligned with the organisation's mission, such as clean energy, sustainable agriculture or social entrepreneurship.
Impact measurement: Establishing clear metrics and benchmarks to assess the social and environmental impact of investments, enabling organisations to track progress and make informed decisions.
Sustainable impact investing offers a compelling opportunity for charitable organisations to maximise their social and financial impact. By integrating ESG considerations into investment decisions and adopting responsible stewardship practices, these organisations can align their portfolios with their purpose, attract like-minded donors, volunteers and staff, and contribute to a more sustainable future. As the demand for sustainable investing continues to grow, charitable organisations have an opportunity to lead by example and make a positive change in the investment landscape.
The next step
If you require any advice on sustainable impact investing, please contact Harriet Hodgson-Grove on h.hodgson-grove@uhy-uk.com or your usual UHY adviser.
