Europe

UK Charities Divesting from Fossil Fuels, Integrating ESG Factors

More organisations investing in line with charitable mission, fewer seeing tension between profit and doing good.

Charitable organisations in the UK have begun excluding fossil fuels and are increasingly likely to incorporate ESG factors into their investment decisions, according to new research from Cazanove Capital, part of Schroders’ wealth management business.

Cazenove’s Intentional Investing 2020 report cited an 18 percentage-point increase in UK-based charitable organisations linking their mission to their investment strategies since 2015. More than three quarters (77%) now invest with their charitable mission in mind versus less than a quarter in 2010 (23%).

This rise has driven largely by organisations that depend on charitable donations from the public, with 81% now investing responsibly. Charities which are financially independent have also begun to invest in line with their mission statement (72%), but are still only reaching the level that publicly funded charities were at in 2015 (76%).

The report notes a general increase in mission-linked investing across the board, even finding that charitable sectors with the lowest likelihood of adopting responsible investment policies in 2015 showing the highest levels of improvement. Higher education charities, for example, saw an increase of 43% in mission-linked investments.

“Many of our clients are working with us to set a clear intention with their investment policies. This is translated into positive impact both by avoiding harm and investing in solutions such as sustainable infrastructure, social housing and renewable energy,” said Kate Rogers, Co-Head of Charities at Cazenove Capital.

The research also reported a sharp rise in the number of charities excluding fossil fuels from their portfolios to 33% in 2020 from over just 4% in 2015. Historically, charities have avoided investment in the likes of tobacco, armaments, pornography and gambling. Exclusion remains the key tactic for responsible investment among charities, cited by 63%, but it is increasingly used in combination with efforts to invest for positive impact, for example selecting investments based on beneficial impact to stakeholders (35%).

The increase in responsible investment strategies coincides with a decline in concerns expressed by charities over potentially negative impacts on financial returns. Cazanove’s research found a sight rise to 61% in the number of investors believing responsible investing has neither a positive nor negative impact, while 27% of respondents said they believe responsible investment will increase returns, a nine percentage-point increase on 2015.

The most commonly cited reason to adapt a responsible investment policy was to consider ESG as part of the investment process (62%), following by avoiding conflict with charitable aims (58%) and avoiding investments detrimental to society (53%)

“The significant uptick in climate change policies has mirrored wider social consciousness and we expect this to continue to broaden to include people alongside planet,” added Rogers. “We are keen to challenge the companies in which we invest and be challenged by our clients to show how we are accelerating the transition towards a sustainable economy.”

The research is based on a survey of 295 long-term charity investors between January and March 2020.

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