investing in a minefield


By Tim Willis, Chair of CIPFA Charities and social enterprises panel

In 2013 Panorama reported on ‘unethical’ investments made by Comic Relief, highlighting the financial dilemmas faced by charities. There is often a conflict between reputation and reward, and finance directors can help by encouraging a grown-up and considered approach.

One of the stories of 2013 was Comic Relief’s investment of a small amount of its funds in “undesirable” companies. This is the sort of story that many a charity Finance Director (FD) worries about in respect of their own organisation.

But should charities worth their salt make a conscious decision not to invest in the bad ‘uns? And the “unethical”? You could argue, anything that sits outside an “ethical” fund, but that would restrict investment portfolio choices. Is gambling unethical? If so, where does that leave the Big Lottery Fund? What about fast food? Russian oil drilling? Why stop at investments? What about purchasing policy, sponsorship and supply of services? How many big charities transact with organisations with questionable ethical track records? Should a large charity refurbish and re-use old desks and chairs rather than buy new? Does it recycle as much as it could? Does it recruit through apprenticeships or poach high-flyers via recruitment consultants?

These are some of the moral quandaries even before you consider the FD’s angle. It can be challenging enough weighing up the need for diversification, balancing financial risk (never mind reputational risk) against reward, and the potentially substantial impact of good or bad investment decisions on the organisation’s finances. And after all, the prevailing driver for the FD is to maximise returns.

As financial investment portfolios become more sophisticated, it is difficult to know for sure that a managed fund doesn’t have a holding in another fund that holds stock in an unethical company, or stock in a company that does business with other, unethical companies. Ethical funds can be part of the solution, but this has to be an explicit policy of the organisation and the potential financial consequences have to be made clear at the point that the policy is agreed.

Perhaps the response from the third sector to the Comic Relief scenario should be bolder: to say, it’s up to individual organisations to decide on their investment policy. There are a range of ways in which an organisation can choose to do business ethically, not just via its investment policy. There should be recognition that we live in a complex world, with shades of grey. Yes, an organisation should be true to its values but it has financial responsibilities too.

The FD can have a calming influence here, and demonstrate leadership. We don’t have to throw our hands in the air and argue we can’t take a purist ethical stance because it is all too complicated. But we can encourage our organisations to take a grown-up, considered look at all aspects of our business and accept some degree of risk regarding reputation.

Decide where the balance is struck between financial reward and ethics, which will be different for each organisation; and adopt a policy that is both realistic and grounded in the organisation’s values. The policy can then be returned to with confidence, if challenged by funders, customers, partners, or the media.