Blog: Charity Commission for England & Wales’ responsible investment consultation

The Charity Commission for England & Wales is currently consulting on their guidance on how charities can invest. This blog sets out our initial thinking. We are also organising an event on 4 May for members to share their views before we submit our final response to the consultation (see details below).

The responsible investment consultation is of particular interest to ACF’s over 400 strong membership who collectively hold assets of over £50bn, representing approximately 40% of the charity sector’s assets1. Investments are a vital source of funding for a majority of ACF’s members, often providing their main source of income for grants budgets. 

Until 20 May, the Commission is seeking “views on the clarity of draft revised guidance for charity trustees about adopting a responsible (or ‘ethical’) approach to investing their charity’s funds”. 

ACF welcomes the opportunity to respond to the Commission’s consultation on charity investment practice, following on from their 2020 “listening exercise”. The field of charity investment has seen rapid developments in recent years as responsible, sustainable and impact-driven investment approaches become mainstream both within charitable investments and the investment management sector more broadly. 

As before, the revised guidance confirms that charities can invest to: 

- generate money which you can spend on your charity’s purposes - ‘financial investment’
- achieve your charity’s purposes more directly - social, programme-related, or mixed motive investment

A reduced burden and a more permissive framework

The substantive changes to the revised guidance are under ‘financial investment’. The regulatory impact assessment states: “For charities with no permanent endowment… there is some saving in the regulatory burden. This is because there is a reduction in the conditions these charities have to satisfy before they take a responsible investment approach.” A relatively small percentage of foundations have a permanent endowment as defined in law2, therefore for most foundations there is a saving in the regulatory burden. Even for those with a permanent endowment, there is a more permissive framework for responsible investment. 

The consultation description notes that in response to the listening exercise “some trustees felt they are unable to make responsible investments, because they perceive they have an overriding legal duty to maximise financial returns when investing, regardless of any other consideration”. ACF therefore cautiously welcomes this clearer and more permissive framing. However as outlined below there remains some confusion in the use of the term ‘responsible investment’.  

Getting the language right

Although replacing the use of the phrase ‘ethical investment’ with ‘responsible investment’ makes sense given the term’s association in some quarters with charities with a religious motivation, the proposed changes perhaps do not provide sufficient clarity. 

Section 2 of the revised guidance indicates that trustees can choose “whether your charity should invest in a way that reflects your charity’s purposes and values (a “responsible investment” approach)”. However the following section 2.1, is more permissive, and states that charities “can take a responsible investment approach even if there is no apparent direct conflict with your charity’s charitable purposes, if you can show this is in the best interest of your charity”. This difference in tone could give rise to confusion on whether responsible investment in the Commission’s view is about your charity’s purpose and values, or a wider investment approach. 

At ACF we have grappled with the evolving terminology in the investment space, and would rather investment guidance were framed around the notion that taking account of your charity’s purposes, and seeking to be ‘responsible’ or ‘ethical’, is standard practice – the starting point for investment decisions – rather than as an optional extra.

In addition, suggesting that “responsible investment” is about “reflecting your charity’s purpose and values”, does not successfully reflect the term’s current usage within the charity or investment management sectors. As outlined below, typically foundations and investment managers use “responsible investment” to refer to taking into account environmental, social and governance (ESG) factors which may not be directly linked to the charity’s purpose and values but are important considerations in view of long-term stability and financial returns. 

A false binary

Pitching ‘responsible’ investment as an alternate choice to financial return, rather than a methodology for achieving it, is outdated and creates a false binary. Given the performance of such investments in recent years, no longer should the pursuit of financial return and taking account of the charity's purposes and values in investments be in any way contradictory, nor does it seem in keeping with societal expectation of charities to put all their assets to good use. 

Whilst ‘responsible investment’ could certainly encompass the examples listed in the revised guidance3, active investment management of any charity’s assets to achieve stable financial returns necessitates analysing a company’s environmental, social and governance performance to weed out companies which lack strong ESG processes. This is recognised later in the guidance in section 4 which it is suggested should be updated that “all charities can take into account” consideration of ESG risks including ‘climate, employment practices, sustainability, human rights, community impact, executive compensation and board accountability’. 

The Commission’s extensive list of ESG risks demonstrates clearly that choosing a “responsible investment” approach is not an added extra, but a basic requirement of fiscal prudence, charity impact and reputation management. For many ACF members, investment in companies with strong ESG processes, and the associated shareholder engagement and voting to achieve this, are a vital part of achieving the financial returns needed to deliver the ‘level of income of growth [they] are aiming for’ as per the Charity Commission’s guidance. 

For those organisations with a permanent endowment the guidance indicates that they can take a responsible investment approach if certain conditions are met. ACF feels these conditions over-emphasise the ‘risk of lower returns’ or a ‘financial downside’. Research4 clearly demonstrates that, as noted above, a responsible investment approach provides stable long-term financial returns, particularly as all major economies transition towards carbon neutrality.   

ACF welcomes the Charity Commission’s willingness to listen and engage prior to drafting the final guidance and looks forward to submitting our full response. 

Next steps

ACF will be hosting an event on Tuesday 4 May, 2-3pm for members to share their views. Book your place here. ACF will then submit our response to the consultation and publish it on our website in advance of the Commission’s deadline. 

Foundations can also submit their own response directly at:
The consultation closes on 20 May 2021. 



1. NCVO Almanac 2020 records net assets of £139.2bn for the UK charity sector, of which £110.9bn are investment assets. 
2. A ‘permanent endowment’ is where a charity’s governing document sets out that its money or property was originally meant to be held by a charity forever. Many foundations intend to exist in perpetuity but are not ‘permanently endowed’ in a legal sense.

3. “- a health charity avoiding investments in businesses whose products are harmful to health (‘negative screening’)
- an environmental charity choosing to invest in the renewable energy sector (‘positive screening’)
- a human rights charity using its shareholder rights to influence company practice (‘stakeholder activism’)
- a heritage charity avoiding investments in fossil fuels because the trustees have evidence that this would damage its reputation, reduce donations and not be in the charity’s best interests”

4. Deutsche Bank (2016) ESG and financial performance: aggregated evidence from more than 2000 empirical studies. 

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