Pooled Investment Funds: Meeting the SRI Needs of Charity ...


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  • Currently: Top heavy- you may wish to remove some of the early detail. I included it as this was a good time in the event to cover basics and make sure everyone up to speed. Presentation of key findings: Present then give analysis? (as currently) OR Present with analysis? (eg as present issues what issues are/ are not covered, talk about how this fits with consumer attitudes etc.)
  • Definition For charities Examples: Positive screens available to investors with a segregated approach include social entrepreneurship funds, micro- credit schemes, investment in solution companies. Also options discussed in Charity SRI developing countries seminar including immunisation bonds
  • Variety of investment opportunities in equities, cash, fixed interest, property and hedge funds allow investors with a similar profile to pool investments and benefit from reduced costs and low minimum investment levels. The FSA is likely to take over the regulation of charity pooled funds in 2010. The Budget statement of April 2009 proposed changes to the regulation of CIFs. HM Treasury issued a proposal in July 2009 to replace CIFs and common deposit funds with a new type of authorised investment fund (AIF), the charity AIF, which would be open only to charity investors and authorised and regulated by the Financial Services Authority (FSA). Under the proposals the charity AIF would not be a registered charity, but a generous tax regime would be preserved If CIFs are no longer registered charities there could be more scope to include responsible investment criteria in funds provided. Some fund managers maintain that current Charity Commission regulation prevents them from offering any form of responsible investment CIF.
  • The Charity Commission lists all CIFs in its booklet Common Investment Funds – A basic guide to their regulation. Before this guide was completed, each fund manager was given an opportunity to comment on the information regarding their funds. What are pooled funds? ccla
  • Since 2006
  • This is, in the main, in line with the engagement policy of the fund manager across all of the funds that they manage. In relation to 2006
  • The most relevant and significant ESG issues will vary according to the missions and activities of charities. Limited use of positive screens 5 funds with positive screens vs 26 with negative screens Positive screens available to investors with a segregated approach include social entrepreneurship funds, micro- credit schemes, investment in solution companies. Also options discussed in CharitySRI developing countries seminar including immunisation bonds.
  • Issues such as international norms and conventions on human rights, labour standards, bribery and corruption are increasingly seen as key considerations for responsible investors. Breaches of such standards can be used as the basis for screening or engagement with companies. It is striking that few charity pooled funds make reference to such issues in their policy statements. It is also surprising that very few charity pooled funds make any explicit reference to climate change as a responsible investment issue. Given its financial relevance, and its prominence as a widespread societal concern, this could be an issue that charity pooled funds should consider in future. Depend on charity and reasons for investment approach. Issues that have in the past been focused on by campaigning groups include charities investing in the arms trade, poor supply chain management. Consumer survey results: issues that consumers feel banks should give higher priority to: Human rights, 67% fair trade 65%, military 61%, environment 61% climate change 59% High score given to fair trade when labour standards and supply chains given such low focus Key stakeholders for charities. Could be beneficiaries, staff or donors. Therefore, there is scope for more charity pooled funds to reflect current trends in responsible investment. It is likely that there is an emerging latent demand for funds which focus on issues such as climate change, human rights and labour standards.
  • New funds incorporating engagement strategies and ethical concerns including climate change and human rights issues Fundraising charities more likely to have an ethical investment policy than foundations and service delivery charities- according to CFDG, EIRIS poll showing importance of donor values, reputation damage Responsible investment is not just about screening out companies. It relates to the whole investment process – the decisions over which companies or products to invest in and the ownership practices relating to engagement and voting. As described above, there is a growing recognition that ESG factors can potentially be financially material and the consideration of such issues can help to mitigate risks and identify opportunities. We could therefore expect that a growing number of fund managers will integrate ESG factors into their investment processes. Relatively few of the fund managers included in our survey provided details of a clear policy on engagement, voting and integration.
  • Pooled Investment Funds: Meeting the SRI Needs of Charity ...

    1. 1. <ul><li>Pooled Investment Funds: </li></ul><ul><li>Meeting the SRI Needs of Charity Investors? </li></ul><ul><li>Stephen Hine EIRIS Foundation </li></ul>
    2. 2. <ul><li>The EIRIS Foundation </li></ul><ul><li>Charity that supports ethical investment </li></ul><ul><li>Established in 1983 as a collaborative research venture by a group of churches and charities that needed to put their own principles into practice </li></ul><ul><li>Provides other charities with information and advice to enable them to choose investments which do not conflict with their work </li></ul><ul><li>EIRIS Ltd is the Foundation’s subsidiary – it helps to deliver the charitable aims and provides information services to investors </li></ul><ul><li>EIRIS researches the social environmental and governance ethical aspects of companies </li></ul>
    3. 3. <ul><li>Overview </li></ul><ul><li>Mapping the field: Responsible Investment in Pooled Funds and Charity Needs </li></ul><ul><li>The 2009 CIF Guide </li></ul><ul><ul><li>Update of guide published in 2006 </li></ul></ul><ul><ul><li>Reviews the ways that social, environmental, governmental and ethical issues are addressed by the fund managers of CIFs throughout the investment process </li></ul></ul><ul><li>How well do CIFs currently meet the Responsible Investment needs of charities? </li></ul>
    4. 4. <ul><li>Mapping the Field: Responsible investment in pooled funds and charity needs </li></ul>
    5. 5. <ul><li>What is responsible investment? </li></ul><ul><li>The incorporation of environmental, social governance or ethical issues into investment decisions and ownership practices </li></ul><ul><li>Using investments to complement rather than counter a charity’s aims - link to mission </li></ul><ul><li>Potentially increasing financial performance through more risk aware strategy </li></ul><ul><ul><li>avoiding alienating supporters, beneficiaries and staff </li></ul></ul><ul><ul><li>addressing financially-relevant ESG and E risks and identify new investment opportunities </li></ul></ul>
    6. 6. <ul><li>Key responsible investment approaches </li></ul><ul><li>Support (positive screening) </li></ul><ul><li>Investing in companies producing positive products or services or with responsible business practices </li></ul><ul><li>Avoidance (negative screening) </li></ul><ul><li>Not investing in companies that do not meet ethical criteria </li></ul><ul><li>Engagement (shareholder activism) </li></ul><ul><li>Using the rights of ownership to maintain and improve business practice </li></ul>
    7. 7. Common investment funds <ul><li>Pooled investment vehicles- specifically for charities </li></ul><ul><li>Popular: Low minimum investment levels, tax exemptions, administratively simple </li></ul><ul><li>Must cater for the needs of a variety of investors - Individual charities can have limited influence over the responsible investment strategies employed. </li></ul><ul><li>Critical that charities are able to seek clear information on the responsible investment approaches of funds when deciding where to invest </li></ul>
    8. 8. <ul><li>Research Findings </li></ul>
    9. 9. About the research <ul><li>Approached - </li></ul><ul><li>All 45 CIFs listed within Charity Commission guide as of August 2008 plus two pooled funds offered only to charities and one CIF due to be launched in early 2010 Information received on 42 funds </li></ul><ul><li>Asked - </li></ul><ul><li>Whether they had a responsible investment approach </li></ul><ul><li>Which ESG and E issues they addressed </li></ul><ul><li>The responsible investment approach taken by the fund manager (negative, positive screening, engagement) </li></ul>
    10. 10. 2006 Guide <ul><li>“ It may be an appropriate time for charity investors to ask fund managers to provide CIFs that better suit their SEE objectives. Examples could include: a CIF with specific environmental criteria or a CIF which focuses on companies that produce positive products or services” </li></ul>
    11. 11. Since 2006 <ul><li>Growth in uptake of SRI by charities </li></ul><ul><li>Mainstreaming of concept </li></ul><ul><li>Expectation that ESG integration consonant with and may be demanded by fiduciary duty </li></ul><ul><li>UNPRI – Foundations & their asset managers are members </li></ul>
    12. 12. 2009 Pooled Funds: SRI Opportunities <ul><li>All ESG and E issues surveyed were incorporated in screening processes by at least two funds </li></ul><ul><li>Some provided details of engagement policies and how they integrate financially material ESG issues into their investments </li></ul><ul><li>Fourteen fund managers of CIFs are signatories to the UNPRI </li></ul>
    13. 13. Traditional screening still predominates <ul><li>Negative rather than positive approaches favoured </li></ul><ul><li>A limited choice of issues addressed beyond tobacco screens (27 screen tobacco, of which 14 also screen for other issues) </li></ul><ul><li>Focus on avoiding ‘sin’ stocks - alcohol, tobacco and pornography plus military investments. </li></ul><ul><li>Limited use of positive screens – investing in companies making a difference </li></ul><ul><li>Similar to 2006 – 23 screened for tobacco alone, 8 tobacco and other screens </li></ul>
    14. 14. Number of funds screening out each issue
    15. 15. Limited engagement and integration <ul><li>Only 11 gave details of engagement approach - funds could be missing out on opportunities to invest responsibly at other points in the investment process </li></ul><ul><li>Only 7 provided details of a clear policy on how financially material issues integrated into investment </li></ul><ul><ul><li>given its financial relevance, how a fund manager integrates ESG risks and opportunities into their investment decisions and ownership practices is an issue that charity investors should consider. </li></ul></ul>
    16. 16. Limited options to respond to environmental & social challenges and opportunities <ul><li>Issues such as international norms on human rights, labour standards, bribery and corruption are increasingly seen as key considerations for responsible investors </li></ul><ul><li>Very few funds make reference to climate change </li></ul><ul><li>Putting investments at risk? </li></ul><ul><li>Potentially missing opportunities? </li></ul><ul><li>Could limit ability to match investments to mission </li></ul>
    17. 17. Conclusions <ul><li>Some developments since 2006 </li></ul><ul><li>ESG issues critical to all investors – need for all fund managers to engage with these issues </li></ul><ul><li>Likely to be latent demand for fund that focuses on high impact social investment </li></ul><ul><li>Critical that charities are able to seek clear information on the responsible investment approaches of funds when deciding where to invest </li></ul><ul><li>Role of charity consultants is key </li></ul><ul><li>Charities need to communicate with fund manager if do not provide what need </li></ul>
    18. 18. <ul><li>We can help…… </li></ul><ul><li>Stephen Hine & Victoria Woodbridge </li></ul><ul><li>EIRIS </li></ul><ul><li>[email_address] </li></ul><ul><li>0207 840 5716 </li></ul><ul><li>[email_address] </li></ul><ul><li>020 840 5701 </li></ul><ul><li>www.charitysri.org & www.eiris.org </li></ul>