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charities to reveal SRI policy

May 2005

Large charities in England and Wales will now have to state their policy on socially responsible investment when they file their annual reports.

A regulation brought into effect last month requires charities with a yearly income of at least £250,000 ($470,000) to outline ‘the extent (if any) to which social, environmental or ethical considerations are taken into account’ when they decide on overall investment policy.

The regulation, which the Charity Commission says will affect 12,159 organizations with total investments of £68billion, mirrors SRI disclosure requirements on pension funds introduced in July 2000. Charity trustees will have to divulge their SRI policy in the financial review section of their public annual report to the Charity Commission, which regulates charitable bodies in England and Wales.

The UK government accepted the case for extending disclosure to the charitable sector after a Downing Street strategy unit report recommendation in 2002. Now the regulation has been included in a revised version of the Statement of Recommended Practice from the Charity Commission.

However, the regulation applies to more charities than originally expected, as the government had initially said it would cover only organizations with an annual income of more than £1million. The Home Office has also said it will expect smaller charities with significant equity holdings to declare their SRI policy voluntarily.

Clare Brook, SRI director at Morley Fund Management, which handles investments for a number of charities, including Friends of the Earth and Greenpeace, said the regulation could have a noticeable effect on SRI uptake. ‘These charities manage a large amount of money, but the impact of the regulation depends not so much on who is caught up by it but on who acts upon it in a positive way,’ she told EP. ‘If lots of the bigger charities respond then it would certainly be grist to the SRI mill.’

Brook added: ‘At the moment there is this weird dichotomy whereby charities espouse particular values through their charitable work and yet often manage their money in ways that don’t reflect those values. They are facing reputational risks just like companies.’

Neville White, manager of the SRI unit at CCLA, the biggest UK charity fund manager in terms of assets under management, said: ‘The pensions regulation changed thinking among pension fund trustees and this regulatory change will similarly stir interest in the charity sector. There is no justification philosophically why charities shouldn’t be subject to the same regime as companies.’

Around two-thirds of UK charity investments are in equities. The UK Social Investment Forum will publish guidance this month advising trustees how to meet the disclosure regulation ‘and the options available to them’.


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