Should Charities Be Forced to Invest Ethically?

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Ethical investment, while different from charities and non-governmental organisations (NGOs) in its methods, shares a goal with them: to advocate for causes and strive for a better future. This year, a new wave of holistic, ethical economics is washing over these three methods.

Causes and their advocates – from Orangutan sanctuaries in Borneo to homeless-hiring bakeries in New York – are becoming so intertwined that we can hardly consider each issue in isolation. The social effects the environmental, and vice versa. Increasingly, people are asking questions of the charities they choose to support: what do they support?

Many pressure groups and individuals are becoming more aware of the holistic nature of social and environmental ills, and they want to make sure their favourite charities are, too. Ethical investment is one way a charity can prove its ethical credentials.

Divestment: A Case Study

A hot topic right now is “divestment”. Companies worldwide are being pressured to divest from fossil fuels because the cause that’s king, climate change, has reached a tipping point. NGOs and charities, even those without explicit environmental ties – such as The Churches of England and Scotland – are using ethical economics to strive for a fossil fuel-free future.

However, a recent debate at the University of Edinburgh – which is currently being pressured to divest itself – brought to light layers of complexity in what seemed like a straightforward ethical issue.

Divestment is simply the selling of shares in a company; “divestment,” to the ethical investment and NGO community, tends to refer to the selling of shares in oil and gas companies. Divesting, then, is not actually an act of ethical investment; it’s just a rejection of unethical investment.

If the University were to divest from fossil fuels, those companies wouldn’t be losing money or facing any pressure to change. However, its proponents argue, divestment is an economic symbol: it sparks a conversation for companies and motivates them to become environmentally-friendly (even if just for the PR).

My Charity Has Divested – Now What?

Charities and NGOs often rely on donations to keep their good work going, so investing is important to them. To avoid financial stress, they choose funds that guarantee returns at a certain level; divesting from unethical but high-return funds can be cause for concern.

We’ve covered before how ethical investments can provide returns as high as any other type of fund. The Church of England even reports that its ethical investments tend to out-perform its traditional ones. Even if this weren’t the case, increasing public pressure and holistic ethical attitudes mean a charity that invests ethically is more likely to receive long-term public support.

Even individuals who choose to invest ethically can spend a great deal of time pondering the subjectivity of ethics, and what’s important to them; this is much harder for a charity or NGO.

A charity looking to invest ethically has to answer a few questions, including but not limited to:

  • Should our investments be related to our cause?
    E.g.: The Red Cross investing in medical technology.
  • Should our investments consider other causes, and how they might affect ours?
    E.g.: Habitat for Humanity investing in climate change reduction.
  • Should we make our own portfolio, or use an existing ethical fund?

How Does a Charity Best Invest Ethically?

Large charities and NGOs might have the time and resources to create their own portfolios, but smaller ones aren’t out of options.

Once the many vested parties of a charity – its sponsors, stakeholders, partners, and volunteers – have agreed on what they consider an ethical investment, there are a range of funds to choose from.

As a charity, you’re expected to be “good” with your money: and you’ll have to prove it. Comic Relief famously came under fire after it emerged they’d been investing in arms, alcohol and tobacco; the big three “sin stocks”.

Taking that final step of financial transparency – by making statements available on your website, for example – means you can avoid investigations or public interrogations like those Comic Relief faced, as well as build a large, trusting support base.

Should All Charities be Forced to Invest Ethically?

It’s unlikely they need to be forced. With huge numbers of charities and NGOs looking to embrace holistic ethics – ethics that intertwine the social and environmental – those charities that are transparent in their actions and investments will have more public support, which is vital to the longevity of a charity.

Want to invest in a cause close to your heart? Why not get some expert advice to make sure you’re putting your money in the right place?

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