Trustees will be aware of the recent move by a coalition of charities to request clarification from the Charity Commission around the extent of their legal responsibilities when it comes to aligning investment activity with charitable objectives. The issues that are outlined by the coalition focus particularly on outdated law, contrasted with the rapidly developing, systemic challenges that the world is facing; climate change in particular.
Whilst charities are permitted to have a responsible investment policy currently they are not required to do so, and the landscape is further complicated by the variety of options that charities have should they then look to integrate ethical, ESG or sustainability factors into the investment process. Furthermore, charities face pressure to balance these factors with the need to achieve a good level of investment return on a consistent long-term basis.
However, the need for charities consciously to account for the societal or environmental impact of their investments has always been there. Not only does it help to protect the reputation of a charity, but in the long-term it can yield better and more consistent returns.
EdenTree’s responsible and sustainable screening model exemplifies how charities can achieve this. Principles, ethics and responsibility are at the core of the screening process. This has the dual benefit of protecting reputation (by ensuring there is no investment in industries deemed harmful to society), but also provides additional depth to the investment thesis – that companies acting responsibly today will be the companies that are still around tomorrow, and are therefore a source of consistent, long-term returns.
Whilst responsibility lies at the heart of the model, we also view sustainability as a key locomotive for change in investment decision making. Sustainable investment is already attracting significant capital inflows and we believe this will only continue.
EdenTree approaches sustainable investing via two emerging economic models: just transition and circularity. Just transition represents a strategic approach to sustainability, with climate change and the urgent need to decarbonise at its heart. Its aim is to transition our economy towards a future that is net-zero in terms of emissions, where poverty is eradicated, and communities are thriving and resilient.
On the other hand, the circular economy model is one that aims to redefine growth by decoupling economic activity from the consumption of finite resources. Business models design waste out of the system and a closed loop approach is adopted, where materials and products are maintained, repaired, reused, recovered and recycled with as little as possible becoming waste.)
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