Nearly three-quarters (73%) of UK charities are now viewing environmental, social and governance factors as important in the management of their investments, a 12% rise from last year, according to the third Annual Newton Charity Investment Survey.

Newton Investment Management, part of BNY Mellon Investment Management, surveyed 80 UK charities this year, with combined investment assets of almost £15 billion, and sought their views on ethical considerations and asset class returns.

The survey showed that over half of the charities (55%) apply forms of ethical exclusion policy to their investment portfolios, compared with 46% in 2015. Tobacco remains by far the most common exclusion, with 86% of ethically screened portfolios excluding the substance (84% in 2015).

Climate change is also an increasingly important issue for charities. Forty-three per cent of third sector organisations have debated the issue of fossil-fuel free investing, compared with only 29% last year, and 16% have adopted policies to exclude some or all fossil fuel investments from their portfolios (4% in 2015).

Jeremy Wells, Senior Investment Relationship Manager for Charities and Specialist Institutions, Newton Investment Management, said:

“This year’s survey highlights both the increasing prominence of responsible investment among UK charities and the rise of fossil fuel-free investing in their agendas.

“Perhaps not surprisingly given the intensification of the debate around climate change, more charities this year have adopted fossil fuel-free investing. If historically ethical investors have talked about the “big five” of ethical investment exclusions, it is possible that fossil fuel-free will soon join the likes of tobacco, armaments and gambling to become a sixth big investment exclusion.

“The onus is now on investment managers to be able to have investment processes in place that address environmental, social and governance factors. At Newton we have been at the forefront of responsible investment since 1978.”

Additionally, the survey shows that socially responsible investment factors are considered most important by religious charities (71% said they are very important and 29% quite important), while grant-making charities regard them as the least important (only half see them as important).

One hundred per cent of religious charities in the survey have an ethical exclusions policy, comparing to 83% of health-related charities and 75% of arts, heritage and other charities.

When it comes to the adoption of fossil-fuel exclusion, religious charities are also at the forefront, with 71% applying this policy this year (up from 11% in 2015). They are followed by heritage charities at 38% (up from 20% last year). Surprisingly, only 9% of educational charities have adopted such policies this year (compared with 6% in 2015).

Other key findings:

  • Most charities believe the UK’s vote to leave the EU will have a significant impact on their investment activity. When asked whether a vote to leave the EU would have an impact on their investment activity, only 17% of charities felt there would be little or no impact, and over
    half (56%) thought a vote to leave would have a significant impact in the short term, with less of an impact longer term.
  • The majority of charities remain satisfied that their investment managers are meeting their income or total-return targets. For those charities that set an income-only target, satisfaction is very high in 2016, with only 4% feeling that the income produced by their investment portfolio is insufficient to meet their obligations.
  • Charities report a significant reduction in overall total returns in 2106, and are increasingly cautious about the future: the average total return was only +1.6% over the year to 31 March 2016, while almost a third (32%) of this year’s respondents report a decline in their investment portfolio value. Moreover, the majority of charities expect annual total returns of 6% or less over the next 3-5 and 10 years.
  • In aggregate, charities are withdrawing less to spend in 2016 than in 2015, with both the weighted average and median withdrawals lower, at 2.9% and 3.2% respectively. However, charities still consider a sustainable withdrawal rate to be higher than this, with weighted average and median figures of 3.4% and 3.5% respectively.

This independent survey was conducted across leaders and decision-makers in the charity sector between mid-May and the end of June 2016. Representatives of 80 large UK charities, with combined investment assets of almost £15 billion, participated. The results will be shared across the broader charity sector in a series of events, including the Newton Charity Event on 10 November 2016.

Contact:

Christian Zarro
+44 (0) 207 163 3490
christian.zarro@bnymellon.com

Notes to editors:

Newton is a London-based global investment management subsidiary of The Bank of New York Mellon Corporation. With assets under management of £51.8 billion (as at 30 June 2016), including assets managed by Newton Investment Management Limited as dual officers of Newton Investment Management (North America) Limited and The Bank of New York Mellon, Newton’s group of affiliated companies provides investment products and services to a wide range of clients, including pension funds, charities, corporations and (via BNY Mellon) individuals. News and other information about Newton are available at www.newton.co.uk and via Twitter: @NewtonIM.

BNY Mellon is a global investments company dedicated to helping its clients manage and service their financial assets throughout the investment lifecycle. Whether providing financial services for institutions, corporations or individual investors, BNY Mellon delivers informed investment management and investment services in 35 countries and more than 100 markets.

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