Round up of expert advice on charity investment
Mark Morford, Charities Aid Foundation (CAF)
Set out a firm ethical policy: The key from my point of view would be set out a firm ethical policy in your investment policy statement and then search out a provider to help you achieve it. One of the simplest ways is to look at the range of ethical funds that are on offer and see how these compare to the policy you have.
Dealing with loss of investment: Whilst any loss would be disappointing, provided the Trustees have followed this guidance and invested prudently, taking advice where appropriate then the loss would be a function of the risk taken. It is very important to ensure that the behaviour of any investment where capital could be at risk is understood.
Top three points on charity investment:
1) Investors must always have a clear picture of what they are looking to achieve and the risks they are prepared to take before any thought is given to any particular opportunity.
2) Never invest in anything that is not ‘transparent’ or you do not fully understand, or where you are unable to easily get the information you want about it.
3) If you don’t have clear expertise either within the organisation or on the Board then seek professional advice and guidance.
Caroline Mason, Big Society Capital
Social investment should be carefully considered: Social investment isn’t the complete answer to everything, it should be seen as part of the toolbox of financing options (including grants and public sector contracts) that can really build on the social capital and social assets of a community rather than continue its dependence.
Social investment is here to stay: It has huge opportunities for charities to really link the amazing social value they create to a way of raising unsecured, unrestricted, long term financing. Getting trustees to understand that potential may also help them then encourage that as part of their charity investment strategies.
Jane Tully, Charity Finance Group
A robust investment policy should include:
– General objective, so what are you trying to achieve through investments – preserving capital value, income etc..;
-Your charity’s attitude to risk;
-How much is available for investment,
-Timing of returns and liquidity needs;
-Types of investment you may want to make – including ethical considerations;
-Who takes investment decisions, what are your governance arrangements;
-How investments will be managed;
-Reporting requirements for investment managers;
Ethical investment: We did a survey of our members recently and 51% of them with investments had ethical investment policies. We held a seminar on it last month too and one of the key messages coming out was to talk to you charity’s campaigns and policy team, and the fundraisers too and make sure ethical interests are aligned across your charity.
New Charity Commission guidelines encourage charities to achieve both financial and mission related return: The new guidance encourages trustees to think about different ways of using assets – so it could be for financial return (and the return is then spent on the charity’s mission) or it could be to directly further the charity’s mission (this is known as programme related investment). Ultimately charities can achieve both a financial and a mission related return as a result. I think there is a lot that charities can do with the new guidelines if they apply some creative thinking and take an open-minded approach to managing their assets.
Seva Phillips, Charities Aid Foundation (CAF)
Top tips for charities taking on social investment:
1. Clearly identify what your financial need is, whether it will be best met by taking on debt (or equity) and whether you can repay this with interest (if not, a grant is more appropriate!)
2. Be prepared to clearly talk about your social impact and be able to demonstrate this to prospective investors: track record, past successes & stats
3. Build confidence in prospective investors by competently demonstrating your financial skills, being upfront about weaknesses and having realistic goals for the future – at the end of the day, it’s all about trust.
Jake Hayman, The Social Investment Consultancy (TSIC)
Avoid certain investors: The main thing is to negative screen in order to avoid certain industries (porn, tobacco and arms is a good place to start) and then ensure you are invested in a fund with basic environmental, social and governance screening, that’ll keep you away from the very worst at least though real socially responsible investment would and should take you further than compliance and exclusion of the very worst industries.
Problem with not investing in harmful things: The problem we have is that we have had an incredibly risk-averse, policy strict approach to charity investment with an honest belief in most organisations that it doesn’t matter if they have harmful investments, so long as they do good with the profits. We’re starting to get beyond that but being ‘ethical’ isn’t enough – we need to be entrepreneurial, open-minded and innovative in order to take advantage of the sort of opportunities you are talking about. Yes, we need to manage risk as a priority, but we need to aspire to make our investment income as socially positive as our actual expenditure, which is something barely anyone does at present.
David Hoghton-Carter, Minerva Pathway
Need for a financial return can compromise both the mission of the investee and its ability to deliver: The most pressing problem is the risk that the need for a financial return on an investment in a non-profit risks compromising both the mission of the investee and its ability to deliver. For smaller organisations and causes in particular, the need to provide a financial return to an investor can be a game-changer, for the worse. When you’re working with clients or participants from very disadvantaged backgrounds, abruptly expecting them to pay for services which have been free at point of delivery in the past is likely to be prohibitive. The services that are being provided lose the ability to function as a social pressure valve, shifting or deferring the social need.
Top three points for charity investment:
1. More real innovation on investment and giving formats for getting money into charities and other kinds of non-profit, as well as in how we see investment by charities; we need innovation in the money mechanisms to keep pace with innovation in project formats
2. Social impact should be at the heart of everything we’re trying to achieve.
3. Support venture methodology to help developing projects become sustainable on a timetable which doesn’t compromise their goals.
Kate Van Der Plank, National Grid
Corporates can help get the right investment: The role corporates can play in supporting charities by providing business and professional advice, particularly in relation to investment. This can be achieved through pro bono support and also by encouraging staff with the right professional skills to take on volunteer roles such as Trustees, as part of a company volunteering scheme.
Develop strategic partnerships with corporates: As corporates become increasingly aware and concerned about their ethical credentials, adding charities in to their supply chain can be a cost effective way for them to deliver social return but at little extra cost.