The EIRIS Foundation has today submitted our response to the Charity Commission’s consultation on responsible investments (RI) and proposed changes to its current related investment guidance. The consultation follows on from a ‘listening exercise’ the Commission undertook last year which aimed to help them understand the barriers and practical issues that charities and trustees face with regards to RI.
The general intention of the Commission to ensure that there is greater clarity around RI and to reinforce that this is something that charities are ‘allowed’ to do is a positive step. The proposed changes do have a number of points worth welcoming such as encouragement for charities to “know what they own” and the helpful list of examples of charities taking a RI approach in ways which work for them.
Generally though the guidance feels like an attempt to catch-up with what is already happening with regards to RI implementation and certainly doesn’t reflect what some of the leading charities and foundations are doing in this space. The charity sector has hugely contributed to the development of RI in all its forms, in some cases providing the seed capital for what became the retail ethical funds sector, in other cases the thought leadership that has led to transformational engagement strategies or much-needed attention being paid to specific ESG issues. The potential for the sector as a whole to make yet more difference, and actually solve some of the issues that individual charities exist to address, is substantial if only they are given the correct guidance, tools and encouragement.
Particularly, we feel the proposed changes do not adequately reflect:
- current best practice and innovations in the responsible investment landscape.
- societal expectations and need with regards to, amongst other issues, the climate emergency and the ways in which investment can be part of a solution.
- the need, and desire, from charities for forward-thinking guidance that is, at the very least, aligned to other governmental developments around responsible investment (such as current pensions guidance on climate).
- the degree to which thinking around responsible investment and ESG has moved on in recent years dispelling the myth that there is an either-or decision between financial returns and responsible investment.
The failure to state that trustees ‘should’ have a RI policy and that they ‘should’ take ESG risks into account rather than that they can is an extremely odd choice in light of all of the above. This would seem to suggest that trustees can ignore the financial impact of ESG factors such as climate change on their investments, or that they can adopt an ESG policy without regard to whether their investment manager implements it. Requiring consideration of these matters would not impose any particular conclusion on trustees but would ensure good process.
We hope that our and others’ responses, along with the current legal case (two charities have been granted permission to bring a case relating to responsible investments to the High Court. The two charities seek clarification of the law, and the Commission expects that there will be a court hearing later this year) provides an opportunity for the Commission to pause and reflect on how to turn small steps into the leap we feel is considerably more needed