Charities resist pressure to relax ESG investment policies

Charities are maintaining their ESG investment principles despite pressure to loosen policies in pursuit of higher returns, according to new research from Rathbones.

The wealth manager surveyed senior executives at charities with a collective £5bn of equity investments.

It found that 86% of respondents said it was important that investments have strong ESG credentials, while 89% believe the importance of ESG will increase over the next three years. This includes 22% who said ESG will become significantly more important when considering investments.

The findings come despite 76% of charities reporting that they feel under pressure to relax ESG policies in order to deliver the higher returns needed to maintain services.

Rathbones said charities are also planning to toughen their investment exclusion policies, with roughly two thirds (67%) saying policies will become stricter over the next two years. Just 27% said exclusion policies would become looser.

The research found that nearly a third (31%) of charities had already strengthened exclusion lists over the past two years, while two thirds – 66% – had maintained existing lists. Just 3% had cut back their exclusions.

Almost all charities surveyed (94%) said they believe they are very or quite effective at screening out investments.

The study also suggested that charities have become more confident in advisers’ ability to meet ethical requirements. Only a quarter said they are currently very concerned about their adviser’s ability to meet ethical requirements, compared with 59% in Rathbones’ research last year.

However, ESG credentials remain an important factor when charities choose investment advisers. More than four out of five charities (85%) said an investment firm’s ESG credentials are important in the selection process, and almost all respondents said ESG credentials will become even more important over the next three years.

The research also pointed to a growing emphasis on the social element of ESG.

Around 87% of charities said their focus on social investments would increase over the next two years when selecting funds and investments, with 73% saying their focus on on environmental factors would increase, while 79% said the same about governance.

Rathbones said the findings showed charities are continuing to prioritise responsible investment, even as financial pressures mount.

Read more: The death of lazy ESG