CCLA is a client-owned fund manager specialising in the investment of assets for UK not-for-profit organisations.
We’re at the top of Charity Finance’s most recent league table – not just for charitable assets under management, but also for the number of churches and charities we work with, where we beat the competition by a factor of 20.
Having a 40,000 active client-base gives us a unique perspective on the understanding of fiduciary duty in the investment chain in an area where guidance for trustees does exist.
In this article I will look at this guidance, reflect on what I’ve observed and trustees have told me over the last six years, and draw out some potential lessons for others responding to the Law Commission’s consultation this winter.
The Charity Commission’s guidance (Charities & Investment Matters – A Guide for Trustees) is commonly known as CC14 after the code on the back of the physical version of the document. The latest version of CC14 was published two years ago and covers stewardship and ESG, as well as mission-aligned investing.
As ShareAction’s Christine Berry pointed out in her article last week there is very little case law, but the most recent case cited in the Law Commission’s summary document spans the pension and charity sectors. This is the well-known “Bishop of Oxford” case.
There are three Church of England National Investing Bodies (NIBs): the CBF Church of England Funds for the parishes, schools, cathedrals and dioceses, which CCLA manage; the Pensions Board (post-1997 pensions); and the Church Commissioners (pre-1997 pensions and the Church’s large historic charitable endowment).
The accelerating anti-apartheid divestment campaign led to the then Bishop of Oxford taking the largest NIB, the Church Commissioners, to court. The judgement is now often described as an honourable draw: no investments with links to South Africa were required to be sold in the early 90s, but the wording of the legal judgement still underpins the work of the Church’s Ethical Investment Advisory Group (EIAG), which is co-funded by the three NIBs, and the Charity Commission’s guidance on ethical exclusions.The following quotes are from CC14:
• “Charities invest so that they can further their charitable aims”
• “The law permits the following reasons [for ethical investment]”
o “A particular investment conflicts with the aims of the charity; or
o A charity might lose supporters or beneficiaries if it does not invest ethically; or
o There is no significant financial detriment”
• It can include “negative screening”, “positive screening” and “stakeholder activism”.
For the first time in 2011 the guidance for charity trustees in CC14 also covered stewardship and ESG issues:
• “Investment managers should vote and engage with company management as a matter of course”
• “Trustees should have regard to other factors that will influence the level of return, such as the environmental and social impact of the companies invested in and the quality of their governance”
Of course trustees don’t just receive guidance through the Charity Commission’s written word. Often the only advice they receive is from their current or potential fund managers, and, if the charity has sufficient assets, from their lawyers and investment consultants. In many ways it is this sort of advice that is behind John Kay and others’ call for the Law Commission review.
Firstly, it is unusual for fund managers to specialise in charity investment. For only five (c.10%) of the fund managers in Charity Finance’s 2013 league table do charities form the majority of their client base. Charities often end up being advised as if they are secular pension funds. I have lost count of the number of Church and charity trustees who have told me that non-specialist fund managers have advised them that they should focus on relatively short-term financial returns.
The look of relief on trustees’ faces when they see the guidance on ethics, stewardship and ESG in CC14 leaves a lasting impression on those of us who experience this regularly.
Secondly, it is also unusual for the lawyers and investment consultants, which the larger charities use, to specialise in their particular needs as investors. Again the advice given mirrors that which is received by secular pension funds.
So what might this mean for those us who are responding to the Law Commission consultation? I think it points to two things:
• The need to highlight what is happening in practice. As other authors in this series of articles have noted, the Law Commission’s terms of reference covers both the law as it stands and how it is commonly interpreted in practice throughout the investment chain.• The need to highlight where guidance and clarification might be most needed. Trustees are busy people and well-written guidance might not reach them. Perhaps it is trustee boards’ lawyers, fund managers and investment consultants who need clarification and clear guidance from the Law Commission, the FCA and others?
Finally, I would like to thank Christine Berry for all her hard work on this and related issues at ShareAction (you’ll be missed!), and to UKSIF for dedicating so much time to this critical review this winter.
Helen Wildsmith is Head of Ethical & Responsible Investment at CCLA