1. Pooled Investment Funds: Meeting the SRI Needs of Charity Investors? Stephen Hine EIRIS Foundation

2. The EIRIS Foundation Charity that supports ethical investment Established in 1983 as a collaborative research venture by a group of churches and charities that needed to put their own principles into practice Provides other charities with information and advice to enable them to choose investments which do not conflict with their work EIRIS Ltd is the Foundation’s subsidiary – it helps to deliver the charitable aims and provides information services to investors EIRIS researches the social environmental and governance ethical aspects of companies

3. Overview Mapping the field: Responsible Investment in Pooled Funds and Charity Needs The 2009 CIF Guide –Update of guide published in 2006 –Reviews the ways that social, environmental, governmental and ethical issues are addressed by the fund managers of CIFs throughout the investment process How well do CIFs currently meet the Responsible Investment needs of charities?

4. Mapping the Field: Responsible investment in pooled funds and charity needs

5. What is responsible investment? The incorporation of environmental, social governance or ethical issues into investment decisions and ownership practices Using investments to complement rather than counter a charity’s aims - link to mission Potentially increasing financial performance through more risk aware strategy –avoiding alienating supporters, beneficiaries and staff –addressing financially-relevant ESG and E risks and identify new investment opportunities

6. Key responsible investment approaches Support (positive screening) Investing in companies producing positive products or services or with responsible business practices Avoidance (negative screening) Not investing in companies that do not meet ethical criteria Engagement (shareholder activism) Using the rights of ownership to maintain and improve business practice

7. Common investment funds Pooled investment vehicles- specifically for charities Popular: Low minimum investment levels, tax exemptions, administratively simple Must cater for the needs of a variety of investors - Individual charities can have limited influence over the responsible investment strategies employed. Critical that charities are able to seek clear information on the responsible investment approaches of funds when deciding where to invest

8. Research Findings

9. About the research Approached - 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 Asked - Whether they had a responsible investment approach Which ESG and E issues they addressed The responsible investment approach taken by the fund manager (negative, positive screening, engagement)

10. 2006 Guide “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”

11. Since 2006 Growth in uptake of SRI by charities Mainstreaming of concept Expectation that ESG integration consonant with and may be demanded by fiduciary duty UNPRI – Foundations & their asset managers are members

12. 2009 Pooled Funds: SRI Opportunities All ESG and E issues surveyed were incorporated in screening processes by at least two funds Some provided details of engagement policies and how they integrate financially material ESG issues into their investments Fourteen fund managers of CIFs are signatories to the UNPRI

13. Traditional screening still predominates Negative rather than positive approaches favoured A limited choice of issues addressed beyond tobacco screens (27 screen tobacco, of which 14 also screen for other issues) Focus on avoiding ‘sin’ stocks - alcohol, tobacco and pornography plus military investments. Limited use of positive screens – investing in companies making a difference Similar to 2006 – 23 screened for tobacco alone, 8 tobacco and other screens

14. Number of funds screening out each issue

15. Limited engagement and integration Only 11 gave details of engagement approach - funds could be missing out on opportunities to invest responsibly at other points in the investment process Only 7 provided details of a clear policy on how financially material issues integrated into investment –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.

16. Limited options to respond to environmental & social challenges and opportunities Issues such as international norms on human rights, labour standards, bribery and corruption are increasingly seen as key considerations for responsible investors Very few funds make reference to climate change Putting investments at risk? Potentially missing opportunities? Could limit ability to match investments to mission

17. Conclusions Some developments since 2006 ESG issues critical to all investors – need for all fund managers to engage with these issues Likely to be latent demand for fund that focuses on high impact social investment Critical that charities are able to seek clear information on the responsible investment approaches of funds when deciding where to invest Role of charity consultants is key Charities need to communicate with fund manager if do not provide what need

18. We can help…… Stephen Hine & Victoria Woodbridge EIRIS Stephen.hine@eiris.org 0207 840 5716 Victoria.woodbridge@eiris.org 020 840 5701 www.charitysri.orgwww.charitysri.org & www.eiris.orgwww.eiris.org