Charities and climate change
As responsible investors, pension funds are expected to take Environmental, Social and Governance issues into consideration when investing. The buzz word today is sustainability and the theory is that as long term investors it is in their financial interest to invest in sustainable business models.
Pension funds have regulatory frameworks and guidance such as last year’s Law Commission report, which they can use to distinguish between decisions taken for financial as opposed to non-financial (call it ethical if you will) reasons. Fiduciary duty has to predominate, including taking sustainability into account, but non-financial reasons are permitted if certain tests are passed.
Charities and endowments operate under the Charity Commission’s investment guidance CC14 and may legitimately choose to place their charitable objectives above financial returns. They seem, however, to make heavier weather of this distinction. Witness the Church Commissioners’ latest wrangle over Amazon and the departure of the University of Cambridge’s top investment team over climate change.
Charities already have to identify clearly where they are making Programme Related Investments (PRI), ie. those done in pursuit of their charitable objectives. They are also likewise able to not invest in certain companies for non-financial reasons if they are in conflict with them.
In our view, where neither of these is the case, charities and endowments should be following similar guidelines to pension funds. For example, taking climate change issues into account would be obligatory but divestment from fossil fuels without consideration of the financial impact would not be – unless of course that were in alignment with the charity’s charitable objectives. Some Trustees and University Council members may be less than clear about their duties on this front.
Linchpin Advisory Limited provides investment and governance advice to both charities and pension funds. To learn more please click here.