Charity Commission confirms pause in production of new guidance on “responsible investment” until next year at the earliest

Last week's publication by the Charity Commission of a summary of the responses received from charities, umbrella bodies and professionals to its recent draft guidance on “responsible investment" confirmed that charities are going to have to wait until next year at least for its finalised guidance on this topic.

In relation to the draft guidance published in Spring this year, the Commission revealed that responses to the consultation showed the draft guidance had generally been well-received by charities, in particular because of its positive tone, easy reading style and shorter length.

Issues raised in the responses to the consultation, however, included:

• That the definition of “responsible investment” in the guidance only referred to investment decisions which take into account a charity’s purposes: a number of respondents highlighted that “responsible investment” is widely understood not just to cover this kind of investment, but also is understood to involve taking into account environmental, social and governance (“ESG”) factors when making investment decisions, and the Commission’s guidance would work better if it included or referenced ESG integration explicitly.
• The perceived focus of the guidance on financial return: just over a sixth of charity respondents, and over half of respondents who advised charities, raised issues in relation to the way in which the guidance appeared to portray “responsible investment” and investment for financial return as mutually exclusive, despite the existence of evidence showing that “responsible” investments can in many cases either match or do better than “traditional” investments.

In the comments received on the guidance, a small but significant proportion of the respondents – a fifth of charities and almost a third of respondents who advised charities – also urged the Commission to produce guidance which places a positive expectation on charities to consider the wider impact of their investment approach, with such comments tending to focus on the issue of the climate crisis.

As part of its setting out of next steps, the Commission stated that, as two charities had been granted permission to bring a case relating to responsible investment in the High Court during the consultation, it intends to await the judgment in that case – due to be heard in 2022 – before taking its revised guidance forward.

While we wait for further developments in this area, however, there are still some steps charities interest in investing responsibly can take – read our recent article for a summary of the current legal position, and for Neil Pearson’s comments on considerations for charity trustees looking to improve the ESG profile of their charity’s investment portfolio.