Charities Slow to Bridge Gap Between Money and Mission

“All or nothing” approach to responsible investing is hindering collaboration between charities and asset managers on aligning investment strategy with mission objectives.

Charities and foundations are well-positioned to drive sustainable outcomes by developing robust responsible investment policies, but wide gaps persist in aligning money with mission, Lisa Stonestreet, Head of Charity Impact at the EIRIS Foundation, told ESG Investor. 

To help UK charities and foundations of all shapes and sizes bridge that gap, the EIRIS Foundation, a charity driving the responsible investment movement, recently launched CharitySRI (Sustainable and Responsible Investment), which provides information and resources to assist organisations to integrate the management of their endowments with their mission. 

“A lot of organisations have told us that responsible investment has moved up their agenda and are revisiting it,” said Stonestreet. “On the CharitySRI website, there’s information about how to get started with the process of writing a responsible investment policy – it’s quite process orientated.” 

The overall picture might be mixed but “there are some true pioneers in the space that are utilising their whole endowment to achieve their mission”, she said, adding that many charities and foundations have expertise in environmental and social issues that make them valuable data sources and partners for asset managers.  

Through their investment choices, these organisations can influence and engage with financial institutions and investee companies to create a more sustainable and equitable economy overall, Stonestreet said.   

“Pioneers help to inspire others to think about asking questions of their asset managers to improve the impact of their investment on the world,” she explained.  

CharitySRI responds to feedback from charities and foundations that their information needs on responsible investing were not being catered for.  

“A lot of information is provided by product providers, but it’s quite different if you’re being educated by a more objective source.” 

Bridging the gap 

More than nine in ten (91%) charities that responded to the ‘2022 Newton Charity Investment Survey’ believe that “beyond exclusions, it is [their] responsibility to invest responsibly”.  

In 2022, 87% of charities surveyed by Newton Investment Management said that ESG factors are either ‘very’ or ‘quite important’ to the management of their portfolio. However, under a third (29%) exclude fossil fuels from their portfolios, with it remaining a key area of contention within their sustainable investment policies. 

It’s not always clear for charities and foundations how best to get started with responsible investing, according to EIRIS Foundation. Further, for those charities and foundations that already have begun, there are still challenges in understanding how to maximise the potential of their investments to achieve their mission and enact positive change. 

Research by EIRIS Foundation found that charity-specific pooled funds – representing around 17.5% of all charity investments in the UK – have room for improvement when it comes to how they use ESG factors to identify investment risk, with charities and foundations still largely focused on value rather than values.    

“It is frustrating that there is a bit of inertia,” said Stronestreet. “This is due to an approach to thinking about responsible investing as an ‘all or nothing’ situation.” 

According to Stonestreet, many charities tend to view adopting or changing their responsible investment policy as requiring a “radical” approach, whereby they spend a huge amount of time monitoring and revaluating all aspects of their investments, leading many to simply stick to their existing practices. 

EIRIS’ CharitySRI website aims to change that mindset and help charities and foundations to view the adoption or alteration of an organisation’s investment policy as a “gradual process”.  

“I’ve had conversations with charities that say, ‘we’ve gone to our asset managers and said there’s no connection between what we’re trying to address with our grant making, and where our money is invested’ – the two things are often completely separate. 

“The good news is that there are increasingly larger amounts of charities that are realising how ridiculous that approach is.” 

This awakening is leading to more charities and foundations actively engaging with asset managers to provide assurance that their investment strategy aligns with their objectives, she said. 

“Charities and foundations are not necessarily financial experts,” said Stonestreet, adding that organisations rely on advice on its investments from consultants and asset managers and, due to resource issues, many are reluctant to question or go against that advice. 

But charities and foundations have a duty to scrutinise that advice, she said.  

“Voice for change” 

EIRIS Foundation’s CharitySRI aims to provide organisations with practical tools to not only write a responsible investment policy, but to have a better dialogue with their asset managers, according to Stronestreet.  

While many charities rely on negatively screening ‘sin stocks’ (tobacco, alcohol, armaments, gambling and pornography), the site aims to equip them to ask the right questions to assess how an asset managers approach aligns with their priorities and mission. “It’s about encouraging charities to be proactive in their approach”.  

Stonestreet pointed to Esmée Fairbairn Foundation, Dunhill Medical Trust, Cadbury Foundation, Lankelly Chase, and Friends Provident Foundation as examples of organisations that have taken steps to integrate the management of their endowments with their mission, with all three revamping their responsible investment policies and hiring staff to oversee the process.  

She cites Colin Baines’ work as investment engagement manager at Friends Provident Foundation as an example of emerging practice in helping boards and trustees to evolve investment policy and engage with asset managers.  

Baines recently joined Border to Coast Pensions Partnership, one the UK’s largest local government pension schemes, as its stewardship manager.  

Stonestreet said that these charities and foundations represent a “shift” in the way that organisations operating in the sector view their investment capital as part of an “arsenal of tools for achieving their mission”.  

“The charity sector is a powerful voice for change,” she said. “But it often underestimates itself.”

The practical information hub for asset owners looking to invest successfully and sustainably for the long term. As best practice evolves, we will share the news, insights and data to guide asset owners on their individual journey to ESG integration.

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