topics: Budgeting and Planning, Generating Income
Whilst Environmental, Social and Governance (ESG) considerations have become part of the established lexicon in the corporate world, it’s only relatively recently they have been discussed by charities. Against a backdrop of increased scrutiny by the public and the media, a greater acknowledgement of reputational risk, and pressure from stakeholders for charities to live by their values, there is a renewed focus on ESG investing in the third sector.
Charities and churches consider doing the right thing and making a difference to be at the core of their purpose. The social strand of ESG is central to what they do every day. Several charities pursue ethical investing, for instance, choosing not to invest in companies where their activities conflict with the charity’s values, without even acknowledging it as an investment strategy. Charities and churches alike are becoming more aware of the role they want to play in preventing any further damage to the environment. This means taking steps to avoid certain investments and considering how they can have a positive impact on people and the planet. Trustees and church leaders recognise a need to balance this with their duty to manage their charity’s resources with care, skill, and prudence.
The legal aspects of charities adopting ESG-focused investment policies are complex and centred around the 1992 Bishop of Oxford case. This case was perceived to have established a false distinction between responsible investment and financial return, but a landmark ruling on 29 April 2022 has changed the landscape. It approved the proposed investment policies of two charitable trusts which were designed specifically to align with the goals of the Paris Climate Agreement, even where this involves financial risk by excluding investments in a large part of the market. This judgement effectively clarified that trustees can prioritise ESG credentials over financial returns. The Charity Commission is due to publish updated guidance on this matter in the near future.
At the Charities Aid Foundation (CAF), we recognise that ESG issues are critical to the charities and communities we serve. Our aim is to ensure that charities and social purpose enterprises have a choice of financial services that meet their needs. Through CAF’s subsidiary, CAF Financial Solutions Limited (CFSL), we offer access to an investment service designed specifically for UK-based charities and not-for-profit organisations. CFSL has recently launched a new range of ESG-focused funds in partnership with global investment firm abrdn and Investment Fund Services Limited (IFSL).
Neil Poynton, Head of Charities, Charities Aid Foundation, explains
“The launch of these funds reflects our commitment to helping our clients achieve their social and sustainable objectives. Hard work has gone into making sure this group of products meets the requirements of the charity sector. This means balancing the sometimes competing needs for robust investment returns, cost efficiency and investing integrity. Charities are at the heart of what we do, so we wanted to make sure we got these products right. These new funds align with CAF’s wider purpose: to accelerate progress in society towards a fair and sustainable future for all.”
Find out more about the IFSL CAF ESG Fund range at www.abrdn.com/ifsl-caf-esg
