There is no better time for charities to consider making ethical investments
Published 22/12/2011 | 05:00
THE embattled Irish investor might be forgiven for feeling a little bruised by recent (and continuing) events in the financial markets.
Weakness and volatility appear firmly to be the new norm, so perhaps now might not seem the right time to be suggesting charities think about responsible investing; perhaps investing ethically is a luxury that can only to be afforded in better times?
I believe the opposite is the case; with confidence and trust in business at an historically low ebb, there is no better time for charity investors to think deeply about how they invest their money, not just how they use it; literally investing for profit with principle.
A quick glance at the Central Bank of Ireland's website reveals at least a dozen funds domiciled in the Republic offering a 'sustainable', 'ethical', or 'responsible' context to investment.
Whilst this is still relatively modest when compared to the entire Irish investment market, new products are being launched all the time tapping into a market that is growing in awareness and appetite. Figures from the UK, where ethical funds have been on offer to the retail investor for 25 years, are useful. These funds have shown sustained growth in spite of market downturns.
EIRIS, the Ethical Investment Research & Information Service, recently reported ethical and responsible investment in the UK to have surpassed £11bn (€13bn), represented by 50 investment products tailored to all shades of green and ethical opinion from deeply screened funds to those centred on new technology and specialist sustainability themes.
So, concerns that market volatility reduces demand for socially responsible investment has so far not proved to be the case.
Despite undoubtedly choppy waters, ethical investment remains the vehicle of choice for many investors who want to invest for profit with principle.
In addition, some world events that have sent shockwaves through the markets -- the BP oil spill in 2010 being a classic example -- arose from corporate governance or operational failures that many ethical funds, including our own, were shielded from.
Whilst detractors may continue to argue ethics can cost you money, the value destruction occasioned by the BP share price collapse should be a warning that all funds and stocks may suffer from unexpected weakness, poor performance and mishap.
Recent research conducted by Ecclesiastical Investment Management* comparing consumers who either invest or bank ethically, with those who don't, provides a valuable insight into current attitudes among potential investors towards the concept of ethical investment.
The research findings are encouraging for the ethical investment industry overall, with two thirds of non-ethical investors saying they would be more likely to consider ethical investment products, and nearly a quarter of 'non-ethical' investors more likely to invest in ethical products if they secured as good a return as non-ethical investments.
This latter point is interesting because of the long-harboured myth that investing ethically will somehow cost you performance and return; in fact, many ethical funds have equal or better performance than 'conventional' funds, and rank in the top quartile of their sectors against non-ethical peers.
All funds will suffer periods of under-performance; we believe it is unjust to single out 'ethical' models as peculiarly subject to underwhelming returns when this is simply not the case.
According to research conducted by Trinity College, Dublin**, the community and voluntary sector in Ireland is significant, comprising over 19,000 organisations, employing 45,000 people and delivering an estimated annual turnover of some €2.5bn.
These significant contributions are, of course, wholly geared to delivering social improvement and value for the communities they serve; thus the way the community and voluntary sector makes its money (if via investment), should be as significant to trustees as how it is spent.
In the case of modern charities, the investment powers and duties of charity trustees (or directors) are usually set out in the charity's governing documentation.
Here, the investment power can be set out as widely as possible to provide maximum freedom in selecting an appropriate investment strategy for the charity.
Charity law as currently in force does not specifically proscribe ethical investment where a strategy could lead to a lower financial return.
The 2009 Charities Act, which is being implemented on a phased basis, will create a new regulatory authority, the Charities Regulatory Authority(tÚdarás Rialála Carthanas), with powers to advise in this area.
The regulator of charities in England and Wales (Charity Commission for England and Wales) has progressively liberalised its advice over the years to include various approaches to ethical and responsible investment including mission-related and social investment as being wholly acceptable, as long as it aligns with the charities aims and objectives.
There is no reason to suppose that the new Charities Regulatory Authority will not, over time, take a similar view.
Ireland has many world leading companies, whilst exposure to international investing opens the charity investor to thousands more.
The responsible investor seeks to understand the nature and materiality of 'off balance sheet' risks, to engage with business and to raise standards over time. They may choose, as we do, to avoid investing in companies simply because of what they make -- e.g. manufacturing tobacco products or arms, or how they do it -- as we have avoided BP on poor environmental management grounds.
Neville White is the senior socially responsible investment analyst at Ecclesiastical
* Ecclesiastical Investment Management October 2011
** The Hidden Landscape -- First Forays into Mapping Nonprofit Organisations in Ireland -- The Centre for Nonprofit Management School of Business, TCD '06.