1. Responsible Investment for Charities 27th March 2008

2. Adam Ognall Deputy Chief Executive UK Social Investment Forum Sustainable and Responsible Investment: opportunity for charities

3.  Understanding Responsible Investment (RI)  Approaches  Why consider?  Overview of RI in the UK  RI and charities: a growing opportunity Agenda

4.  Responsible Investment is about aligning a charity’s investments with its objects. It is based on achieving the greatest impact from investments by both pursuing maximum financial return and using investments for non- financial gain What is it?

5.  not about accepting worse financial performance  not about imposing values or a particular worldview  not about ‘investment’ that is concerned primarily with furthering the object of the charity (and not with financial returns) What it is not

6.  Negative Screening  Positive Screening best in class thematic (e.g. climate change)  Engagement via active fund manager engagement overlay  [Integration] Approaches

7. Approaches (2) Responsible Investment strategies in the lifetime of an investment process Pre-Investment Post-Investment Divestment Support Avoidance Engagement Combined Strategy Adapted from Eurosif SRI pension fund toolkit (www.eurosif.org)

8. Why consider RI? o avoiding conflict with your charity’s aims o using investments to further the work of your charity o reputational risk o responsible ownership o concern about stakeholders’ views o addressing material environmental, social, governance (ESG) risks and potential investment upside

9. Overview of RI in the UK Growing Demand End 2007 - £0.8-£1 trillion (est) End 2005 - £0.5 trillion End 2002 - £0.2 trillion o Rise in institutional demand Long Term RI, engagement and ownership, integration and multiple asset classes o Rise of the green and ethical investor  £9 bn in green and ethical retail funds  nearly 100 funds on offer  g rowth in no of investor – ‘no type’

10. Overview of RI in the UK (2) Quality of Supply o UK as world centre for sustainable and responsible financial services o growth in services and expertise across supply chain o initiatives (e.g. UNPRI)

11.  Current numbers Most charities have policy (55%) Negative screening most common  Growing opportunity Range of investment options (CIFs, asset classes, engagement products) Better advice, quality of supply and clear regulation  Charities able to match resources, mission and outcomes Charities and RI: growing opportunity

12. 18-24 May 2008 visit www.neiw.org

13. adam.ognall@uksif.org +44 (0) 207 749 9950 www.uksif.org Contact Details:

14. Socially Responsible Investment Debbie Nunn Policy Advisor

15. What is it? SRI can be used to mean the same as ethical investment SRI is investing for financial return, but considering the wider impact of the investment policy on society SRI may involve positive screens (focussing on companies that do good) or negative screens (avoiding investments in a particular company or product)

16. Common screens used alcohol, tobacco, gambling the environment, global warming employment policies and practices products/services arms manufacturing/supply animal testing human rights/equality

17. SRI or PRI? “programme related investment” or “social investment” is to do with generating social return. It is a direct furtherance of the objects of a charity PRI and social investment can generate a financial return - but it will be incidental to the main social objective SRI is a financial investment with the aim of financial return while considering the wider social impact of the investment

18. Powers of investment trustees can only invest using the powers of investment available to them these powers can be statutory or set out in a charity’s governing document most trustees will have the powers of investment conferred on them by the Trustee Act 2000 (the Act)

19. The duty of care When managing investments trustees must: act to certain standards as defined in the Act comply with the general duty described in the Act consider the need for diversification of investments before exercising any power of investment and when reviewing, obtain and consider proper advice from a suitably qualified advisor

20. Can my charity invest in a socially responsible way? Yes, but: a charity’s governing document sometimes imposes specific ethical restrictions on the scope of trustees’ general power of investment – you must comply with these consider whether*: –a type of investment is in direct conflict with the aims of your charity –a type of investment might hamper the work of your charity (e.g. alienate beneficiaries or donors) –The financial return will be just as good even if other moral/ethical considerations are taken into account * Harries (Bishop of Oxford) v Church Commissioners [1992]

21. But remember that……… a power of investment has to be used to further the charity’s purposes those purposes will normally be best served by seeking the best possible return a SRI policy may be entirely consistent with seeking the best possible return with SRI, trustees must make decisions that they reasonably believe will balance risk and reward for the charity you must comply with the duties of care attached to any investment strategy you must consider need for diversification and proper advice

22. Disclosure of policy the current SORP requires any investment policy for charities over the statutory audit level to be disclosed these charities are also required to state the extent to which environmental or ethical considerations are taken into account this should apply to all charities as a matter of good practice

23. Some pointers for trustees our guidance CC14 what is your charity here to do? are you investing to maximise return or to further the charity’s objects? if maximising consider your reasons for being socially responsible what is the best for our beneficiaries? consider the effects on your charity can you do what you want to? take advice and then decide publish clear policy statements

24. Presentation by Jonathan Burchfield 27 March 2008 Responsible Investment for Charities - a case study

25. My experience as a Trustee of the Tubney Charitable Trust General grant-making charity, which has developed a focus on: - conservation of the natural environment; and - welfare of farmed animals Application of Bishop of Oxford rules, and its three exceptions, where investments - - would conflict with the aims of the charity; - might hamper the charity’s work; or - inappropriate on moral grounds, provided this would not involve "a risk of significant financial detriment".

26. My experience as a Trustee of the Tubney Charitable Trust Ethical policy adopted No tobacco (ok?) No investment in companies that: - have an insufficient environmental policy, environmental management system or biodiversity plan or - have been convicted of a pollution offence during the last 3 years May take into account actions taken by companies to reduce environmental risks

27. My experience as a Trustee of the Tubney Charitable Trust Ethical policy adopted (cont.) Avoid so far as possible investment in companies that farm animals on an intensive basis, provide animal testing services for cosmetic products or have provided such services in the last 5 years. The Trustees accept that it may be necessary to apply judgment in these areas May take a proactive approach to encourage companies to change their approach

28. My experience as a Trustee of the Tubney Charitable Trust Lessons learned? Even a general grant-maker can validly adopt an ethical investment policy You can make a difference and influence policy as an investor Bishop of Oxford case is not an obstacle in practice, although still legally binding Practical difficulties of exercising your charity’s vote on company resolutions

29. Friends Provident Foundation Presentation for EIRIS/UKSIF Seminar Responsible Investment for Charities 27 March 2008

30. Brief History Founded: June 2001 Formed as a limited company Received Endowment: July 2004 Accounts published on website: http://www.friendsprovident.co.uk/doclib/Signed%202007%20RA.pdf

31. Can we invest ethically? Legal Constraints? Duties of Trustees Each charity may be different Bottom line  Little difficulty Get advice you can trust

32. Why Invest Ethically? History/Focus Right Use of Money: ‘Ensure our modest funds were used in thoughtful, creative and “right” ways’ Aligning derivation and outcome

33. What the Ethical Investment Policy Is Dark green ethical fund Ethically Screened Bonds 5% M-R-I With effect from 1 October 2007, in F&C Stewardship range of OEICs

34. How was it developed? Took over a year (in both Board and General Purposes Committee) Reviewed issues/objectives What do you want to do/avoid?

35. How was it developed? Reviewed available funds’ content Ensured there was a “cabinet responsibility” outcome amongst all Trustees

36. Lessons Learned/Advice Take time Clarify desired outcomes Engage board as a whole

37. Overcome Trustees’ fear of investment matters Take advice you can trust Lessons Learned/Advice

38. Anything else? “Right Use of Money” For a copy of this book, contact: sue.etherton@friendsprovident.co.uk sue.etherton@friendsprovident.co.uk For details about Stewardship, access http://www.fandc.com/new/aboutus/Default.a spx?id=73101

39. What now? Practical Next Steps Sam Collin EIRIS/UKSIF Charity Project

40. Agenda Step 1: Do your research Step 2: Get it on the agenda Step 3: Do you need to take action? Step 4: Develop, update or expand your responsible investment policy Step 5: Implement responsible investment Further help

41. Step1: Do your research Find out more from others over lunch Visit www.charitysri.orgwww.charitysri.org Review your charity’s current position and resources Talk to your advisers and fund managers

43. Step 2: Get it on the agenda Discuss it at your next trustee / investment committee meeting Share what you’ve learnt Invite ‘experts’ Gain support

44. Step 3: Do you need to take action? Are your investments in line with your mission? Is your reputation at risk? Are you doing enough? Are you achieving your objectives? Are you taking account of ESG risks? Could you do more positive screening/engagement?

45. Step 4: Develop, update or expand your responsible investment policy Incorporate responsible investment criteria into your investment policy Agree on: –Objectives –Social, environmental and ethical issues –Approaches Take advice

46. Agree objectives For example: Manage risk Use investments to further the work of your charity Avoid conflict with aims and activities Influence company behaviour Avoid alienating stakeholders Address financially relevant social, environmental and ethical risks Step 4: Develop, update or expand your responsible investment policy

47. Step 4: Develop, update or expand your responsible investment policy Agree the SEE issues Identify the issues most relevant to your mission, activities and stakeholders Decide on the most important and significant Environment - management, policy, reporting and performance, climate change, mining and quarrying, nuclear power, pollution, sustainable timber Human rights Positive products and services Labour issues – supply chains, trade unions, equal opportunities Community Involvement Military Ethical issues - alcohol, contraception and abortion, gambling, pornography and adult entertainment services, tobacco Animals - animal testing, fur, Intensive farming and meat sale Genetic engineering Developing countries - commodity extraction, debt, breast milk substitutes, access to medicines, tobacco marketing Corporate ethics - bribery and corruption, codes of ethics

48. Step 4: Develop, update or expand your responsible investment policy Agree the approach Positive screening Negative screening Engagement A combination of these

49. Step 5: Implement responsible investment Your advisers and fund managers can help throughout this process Increasing numbers of fund managers now provide responsible investment services Increasing options to invest responsibly in pooled funds Increasing options to invest responsibly in a range of asset classes Broadening range of social, environmental, ethical and governance issues can be considered in investments

50. Step 5: Implement responsible investment Identify pooled funds with SRI criteria www.charitysri.org provides details of a range of pooled funds with SRI criteria available to charities.www.charitysri.org EIRIS free Ethical Funds Directory includes details of each fund’s ethical investment strategy, positive and negative screening criteria, and voting and engagement policy and approach The Eurosif SRI Funds Service provides details of European SRI funds, including information on performance and risk measures Responsible Investment Approaches of Common Investment Funds

51. Further help Roundtable discussions Share and discuss issues, hear the views of experts and learn from your peers Informal environment to share difficulties, dilemmas and doubts Themes: –Developing a policy – where to start –The business case for ethical investment Email support: charitysri@eiris.org

52. Contact Sam Collin EIRIS/UKSIF Charity Project sam.collin@eiris.org 020 7840 5738 www.charitysri.org