Ethical Performance
inside intelligence for responsible business


charities could be forced to disclose stance on SRI

November 2002

Proposals to require charities to disclose whether they have a socially responsible investment policy have been unveiled by an influential policy unit set up by the UK prime minister.

The strategy unit says charities with an annual income of more than £1million ($1.6m) should be brought into line with occupational pension funds, which since July 2000 have had to disclose their stance on SRI.

Smaller charities that have ‘significant holdings of equities’ would also be encouraged to make a voluntary declaration of any SRI policies they may have.

According to the Charity Commission, there are 3820 charities in the UK with an annual income of more than £1m.

The value of investments held by all UK charities is estimated to be £43.4billion, of which 60-70 per cent is in equities. The bulk is accounted for by the big charities. Although this is a significant sum, it is small compared with the amounts held by pension funds.

The proposals are outlined in a document on the regulation of the UK’s not-for-profit sector. Private action, public benefit has been published by the strategy unit, which examines cross-departmental policy issues. It will be put out to consultation until the end of December.

Helen Wildsmith, executive director of the UK Social Investment Forum, said she was ‘delighted’ with the recommendation. ‘It’s a very positive move and will allow charities, which are essentially values-based organizations, to reflect those values in their investments,’ she said.

The Charities Aid Foundation, which runs three funds on behalf of charities, ‘unreservedly welcomed’ the proposals.

A survey of 47 well-known UK charities that own company shares, published late last year by the Ethical Investment Research Service, found that 25 had a formal ethical investment policy and a further five had an informal policy or were developing one.

The ethical investment policies of seven of the charities consisted solely of excluding tobacco companies, which was ‘by far the most prevalent screened-out activity with respect to fund worth’. A number of the charities, which were not named, engaged with companies on social and environmental issues, Eiris found.

Aside from the disclosure regulation, the strategy unit also says ministers should introduce a new legal entity called a ‘community interest company’.

Social enterprises that take on the status would find it easier to raise money and would endure less red tape, among other benefits. In return they would be vetted by the government to ensure their aims ‘are in the public and community interest’.

The government says that the new legal form is needed to encourage the growth of social enterprise, which is often ‘stifled’ by the current requirements for legal incorporation.

It cites Poptel, a co-operative internet service provider, and the Day Chocolate Company, a fair trade chocolate maker part-owned by The Body Shop, as two examples of up to 360,000 organizations likely to be eligible.


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