Consultation outcome

Summary of consultation responses.

Updated 1 August 2023

Introduction

The Commission ran a 6 week public consultation between 08 April and 20 May 2021.

We received 211 responses. We were particularly pleased to hear from 173 charities working in a variety of ways to address different issues, and ranging in size from large to small. Respondent charities hold investment assets that vary considerably in size, complexity, and in the type of contribution they make to their charity’s financial position and delivery of purposes.

This report is a summary of the consultation survey results and the main themes identified from written feedback.

Our consultation was designed to address some of the feedback, obtained in an earlier listening exercise, that the Commission’s investment guidance did not give trustees sufficient assurance that they can decide to take a responsible investment approach.

The consultation asked for views about the clarity of a draft guidance update which sets out the legal framework for financial investment, including responsible investment.

Overall, there has been a positive response to the draft guidance update.

Respondents welcome the Commission’s commitment to updating the guidance, recognising that this is a complex and evolving area.

High survey ratings, and many positive written comments, were received from charity respondents about the clarity of the draft guidance update and its likely contribution to improved trustee confidence.

The consultation results also show that there are areas to continue to carefully consider: most notably the terminology used, and a perceived implication in the draft guidance update that a responsible investment approach means lower returns.

Next steps

During the consultation two charities were granted permission to bring a case relating to responsible investment to the High Court. They are seeking clarification of the law, and there will be a court hearing in 2022. As the court’s decision may affect our final guidance, we will not publish it until the court has given its judgement.

We are very grateful for the valuable and constructive insights we have had from charities, advisers and other stakeholders on this important and complex topic.

Many respondents have offered more input and support. Following the court judgement, we will look again at whether further engagement is needed to help us to develop our published guidance.

Summary

Who we heard from

We received 211 consultation responses:

• most (173) were from charities
• we received 21 responses from investment and legal advisers
• 17 “other” responses were received

178 of these responses were received via the online survey published with the consultation.

When answering the survey questions, respondents used survey free text boxes to make comments 535 times.

In addition to the online survey responses, we received 33 responses via email. ^{[footnote 1]}

We engaged with the following charities and other policy makers during the consultation:

• 17 large investor foundation charities and their representative body, the Association of Charitable Foundations
• 62 smaller charities and the Small Charities Coalition
• HMRC
• the Scottish Charity Regulator (OSCR)

What we heard

• charity respondents – in all income groups - gave high survey ratings for the clarity of the draft guidance update
• 42% of charity respondents, in their written comments, gave positive feedback welcoming the draft guidance update. Comments included references to: improvements in tone, removal of uncertainty and support for the shorter easy-read style ^{[footnote 2]}
• 84% of charity respondents to the survey, after having read the draft guidance, said they were confident that adopting a responsible investment approach is a valid option
• adviser respondents gave more neutral or low ratings to survey questions about the clarity of the draft guidance update and its potential to generate trustee confidence
• most charity respondents gave positive survey ratings for the use of the term responsible investment in the draft guidance update. However, in their written comments about the helpfulness of the term, views were more mixed: 19% of charity respondents commented that they approved of how the term was used, and 28% of charity respondents included comments that expressed concerns. 95% of adviser respondents’ written comments expressed concerns about use of the term ^{[footnote 3]}
• for those identifying problems with the use of the term responsible investment, their main concern was that the Commission’s proposed use of the term is too narrow because it only references taking the charity’s purposes into account when making investment decisions. Investor charities and advisers understand the term more broadly, to include taking into account environmental, social and governance (ESG) factors
• 17% of charity respondents and 57% of adviser respondents, in their written comments, raised points about a perceived implication in the draft guidance update that a responsible investment approach will generate lower returns ^{[footnote 4]}
• 20% of charity respondents and 28.5% of adviser respondents, in their written comments, said that the Commission, as regulator, should place a positive expectation on investor charities to consider the wider impact of their investment approach. In these comments, there was a particular focus on the impact of climate change ^{[footnote 5]}
• all types of respondents gave positive survey ratings for the clarity of the draft guidance content for charities with a duty to invest. Written comments were more mixed: 17% of charity respondents commented that this content set out a useful framework for these charities. 26.5% of charity respondents and 43% of adviser respondents commented that it could be clearer ^{[footnote 6]}
• 19% of charity respondents, in their written comments, raised points about the complexity of managing investments, and their reliance on the expertise of their specialist trustee sub-committees and professional advisers/managers ^{[footnote 7]}

Detailed results - the survey questions

Respondents

Most survey respondents were either charity staff or trustees

Respondent type	Number of respondents
Trustee	67
Charity staff	97
Other	17
Adviser (not on behalf of a charity)	10

Via the survey, we heard from charities across a range of income groups. The table below is based on the total annual gross charity income of the charity respondents.

Charity income	Number of respondents
Below 10k	3
£10k to £100k	10
£100k to £1m	38
£1m to £5m	41
£5m to £10m	36
Over £10m	39

It was useful to hear from charities with simple investment arrangements (often money held on deposit representing reserves), as well as those with more and complex professionally managed portfolios.

Type of investment	Number of respondents
We have a range of investments	103
We mainly have money at the bank in a regular or deposit account	51
We have some money in a common investment or deposit fund	24
We have some land or property that we use to generate income	31
Not sure what deposits or investments we have	3
Other	18

We asked: How clear are you on duties and good practice for decisions on financial investments?

The majority of respondents in all income groups said that the draft guidance update was clear or very clear on these points.

A higher proportion of non-charity respondents (mostly advisers) gave low or neutral ratings.

Charity income	Not at all clear	Not clear	Neither clear nor not clear	Clear	Very clear	Total
Below 10k	0	0	0	0	3	3
£10k to £100k	0	0	1	6	3	10
£100k to £1m	1	2	5	23	7	38
£1m to £5m	1	2	3	17	18	41
£5m to £10m	0	2	0	22	12	36
Over £10m	1	4	1	22	11	39
Not a charity	2	5	2	10	5	24

We asked: How clear are you on what a responsible investment approach is?

The majority of charity respondents in all income groups said that the draft guidance update was clear on this point.

58% of non-charity respondents (mostly advisers) gave low or neutral ratings.

Charity income	Not at all clear	Not clear	Neither clear nor not clear	Clear	Very clear	Total
Below 10k	0	0	0	1	2	3
£10k to £100k	0	0	2	6	2	10
£100k to £1m	0	3	1	25	9	38
£1m to £5m	0	3	7	15	16	41
£5m to £10m	0	2	0	22	12	36
Over £10m	2	5	0	18	14	39
Not a charity	3	6	5	8	2	24

We asked: Is the phrase ‘responsible investment’ an appropriate term for the approach to investing in line with a charity’s purpose and values?

The majority of charity respondents in all income groups answered yes to this question.

22% of charity respondents were unsure. 38% of the largest charity respondents were uncertain or unclear about the use of this term.

67% of non-charity respondents (mostly advisers) were uncertain or unclear about the use of this term.

Use of the term responsible investment is a main theme emerging from comments made in the survey free text boxes and in email responses.

More detail on this feedback is included below.

Charity income	No	Not sure	Yes	Total
Below 10k	0	1	2	3
£10k to £100k	1	2	7	10
£100k to £1m	4	5	28	37
£1m to £5m	4	11	26	41
£5m to £10m	2	8	26	36
Over £10m	6	9	24	39
Not a charity	8	8	8	24

We asked: How confident are you that adopting a responsible investment approach is a valid option?

The majority of charity respondents in all income groups said that the draft guidance update was clear on this point.

61% of non-charity respondents (mostly advisers) thought that the draft guidance update was clear or very clear on these points. 39% gave neutral or low ratings.

Charity income	Not at all confident	Not confident	Neither confident nor not confident	Confident	Very confident	Total
Below 10k	0	0	0	0	3	3
£10k to £100k	0	1	1	4	4	10
£100k to £1m	0	2	3	27	6	38
£1m to £5m	0	3	5	16	17	41
£5m to £10m	1	0	2	21	11	35
Over £10m	1	4	4	21	9	39
Not a charity	2	3	4	9	5	23

We asked: How clear are you about when the tests (for charities with a duty to invest) are relevant to the decision to invest responsibly ?

The majority of respondents in all income groups said that the draft guidance update was clear on this point.

Charity income	Not at all clear	Not clear	Neither clear nor not clear	Clear	Very clear	Total
Below 10k	0	0	1	0	2	3
£10k to £100k	0	0	0	9	1	10
£100k to £1m	2	4	7	19	6	38
£1m to £5m	0	4	8	19	9	40
£5m to £10m	0	1	5	22	8	36
Over £10m	3	3	4	20	8	38
Not a charity	3	3	3	12	2	23

Detailed results - written feedback

The following themes are based on written comments in

• email responses
• survey free text boxes

Use of terminology

47% of charity respondents raised points on this theme as part of their response and most respondents acknowledged the difficulty of arriving at a definition which could be commonly agreed and understood.

Respondents in all categories highlighted the range of terms currently used to describe different approaches to investment. Terms mentioned in responses include: ethical, ESG integration, intentional, impact, mission-aligned, programme-related, responsible, screening - positive and negative, social, socially-responsible, stakeholder activism and sustainable.

Regarding the Commission’s use of the term “ responsible investment” in the draft guidance update:

• 19% of charity respondents commented that use of the term, as used in the draft guidance update, was helpful
• 28% of charity respondents, commented that the term, as used in the draft guidance update, was unhelpful
• 95% of advisers commented that the term, as used in the draft guidance update, was unhelpful citing the same reasons as those given by charities ^{[footnote 8]}

The main points raised were as follows:

Use of term welcomed by some respondents

For respondents supporting the use of the term in the draft guidance update, it was helpful because:

• the word “responsible” has strong positive connotations in the context of trusteeship. It implies good stewardship of charity assets
• it works better than the current guidance terminology “ethical investment”. For some respondents the term ethical investment is narrow, outdated or carries implications that trustees can allow personal or moral judgements to influence how their charity should invest

Use of term problematic for some respondents

For respondents not supporting the use of the term responsible investment as used in the draft guidance update, it was unhelpful principally because the term is normally understood in the charity and investment management sectors in a different and broader way. On this point respondents said that:

• responsible investment is widely understood to include an approach which can encompass considerations of a charity’s purposes and values, but is also about taking into account environmental, social and governance (ESG) factors when making investments
• the term responsible investment, whilst not perfect, would work better in the draft guidance update if the Commission’s definition explicitly included or referenced ESG integration
• currently, the Commission’s explicit coverage of ESG factors sits outside of the draft guidance update and comes later in its investment guidance
• adjusting the definition to include or reference ESG factors would reassure guidance users that the Commission accepts that it is valid for all charity investors, particularly long-term investors, to factor for systemic risks and that to do so is financially material in its own right

A significant number of respondents also commented that responsible investment is not a helpful term because it implies that other approaches are less responsible or not responsible.

Some respondents commented that they continue to prefer the term “ethical investment”, previously used in Commission investment guidance.

Guidance revision – a helpful development

A significant number of comments showed positive support for revision of the guidance, and welcomed the draft. 42% ^{[footnote 9]} of charity respondents raised points on this theme as part of their response, supporting the high ratings given in answer to survey questions. These positive comments reference the following features of the draft guidance update:

• easy reading style and shorter length, both of which will make it more accessible for trustees
• more positive tone
• assurance that responsible investment is a valid strategy for charities, where previously there was uncertainty about this
• giving trustees more confidence
• useful examples, although some respondents felt that more or more detailed examples would also be useful

Fewer advisor respondents commented that the guidance revisions were overall helpful. Their written comments were more focused on how they considered it should develop.

Focus on financial return

17% of charity respondents and 57% of adviser respondents raised points about an implication in the draft guidance update that a responsible investment approach will generate lower returns. ^{[footnote 10]}

The argument raised by respondents can be summarised as follows:

• the wording and structure of the draft guidance update implies that “financial” and “responsible” approaches to investment are mutually exclusive and that there are clear choices or trade-offs between investing responsibly and getting a financial return
• evidence shows that “responsible” investments can in many cases match or even outperform “traditional” investments

Role of the Charity Commission

20% of charity respondents and 28.5% ^{[footnote 11]} of adviser respondents commented that the draft guidance update presents an opportunity for the Commission to do more to encourage charities to adopt a responsible investment approach.

The points raised by respondents can be summarised as follows:

• charities, as public benefit organisations, should be required or expected to invest with reference to their objects, rather than given a choice
• government, corporates and other regulators are identifying a range of measures to respond to climate change. Allowing charities choice about whether to consider the wider impact of their investment approach is not forward-thinking, does not meet societal expectation or needs, and is not aligned to other governmental developments around responsible investment
• some of these respondents said that the Commission should introduce an expectation or requirement around responsible investment. Others felt it would be better for the Commission to set a norm or give more encouragement to charities to consider investing responsibly

The duty to invest

17% of charity respondents commented that the draft guidance update set out clear information for charities with a duty to invest. For these respondents this section of guidance:

• gave clear information about which charities it applied to
• was clear and easy to understand
• set out a useful decision-making framework

26.5% of charity respondents and 43% of charity advisers ^{[footnote 12]} commented that the draft guidance for charities with a duty to invest was problematic. Reasons given included that:

• it gives the impression that a responsible investment approach will reduce the level of investment returns
• it wasn’t clear which charities it applied to. Results show some confusion between the terms “endowment” and “permanent endowment”
• the tests are complex to apply. Some respondents commented that it would be helpful to have some examples to show how the tests might apply

Trustee expertise

19% of charity respondents ^{[footnote 13]} commented on their trustees’ reliance on the expertise of their finance/investment committee to:

• review investment performance
• check the approach of a professional managers/advisers
• report back and advise the other trustees

This group also commented on

• their reliance on their professional managers/advisers
• the difficulty, posed by lack of expertise, in judging how responsible investment principles were incorporated into the fund manager’s approach

1. Where email respondents included clear answers to survey questions (13) we have added those answers to the survey results, as well as taking account of the wider feedback included in the email. ↩

2. 58% of charity respondents did not include comments on this issue as part of their response. ↩

3. 53% of charity respondents and 5% of advisers did not include comments on this issue as part of their response. ↩

4. 83% of charity respondents and 43% of adviser respondents did not include comments on this issue as part of their response. ↩

5. 80% of charity respondents and 72.5% of advisers did not include comments on this issue as part of their response. ↩

6. 56.5% of charity respondents and 57% of adviser respondents did not include comments on this issue as part of their response. ↩

7. 81% off charity respondents did not include comments on this issue as part of their response. ↩

8. 53% of charity respondents and 5% of advisers did not include comments on this issue as part of their response ↩

9. 58% of charity respondents did not include comments on this issue as part of their response. ↩

10. 83% of charity respondents and 43% of adviser respondents did not include comments on this issue as part of their response. ↩

11. 80% of charity respondents and 72.5% of advisers did not include comments on this issue as part of their response. ↩

12. 56.5% of charity respondents and 57% of adviser respondents did not include comments on this issue as part of their response. ↩

13. 81% off charity respondents did not include comments on this issue as part of their response. ↩