Charities Should Disclose How They Invest Their Assets for Social Responsibility

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Investment

May 28, 2014; The Guardian

The headlines last year about Comic Relief weren’t very funny when it became known that the charity fundraising show tried to squelch a BBC Panorama episode that revealed Comic Relief’s investments in guns, alcohol, and tobacco companies. The BBC initially killed the episode at the reported behest of Comic Relief, but the uproar was enough to get the program aired after all and to force a response from Comic Relief, which said that it would like to make more socially responsible investments, but wanted better guidance from the UK’s Charities Commission.

After an internal investigation, Comic Relief in the end generated a new ethical investment policy, but Asheem Singh, the director of public policy at the Association of Chief Executives of Voluntary Organizations (ACEVO), asks, “What about the rest of the UK’s charities and social enterprises? Are they confident that they know how their organizations invest their reserves, their deposits or their pension funds? […] Are many charities investing in alcohol, arms or tobacco?”

While acknowledging the concerns of some that charities should try to get solid returns on their investments, Singh says, “It’s clear that, in an age of global capitalism, investments in good causes—or at least not in bad ones—are a key part of a charitable mission.” He notes that the Charity Commission has published a guidance document acknowledging that ethical investment can be part of a charity’s overall investment portfolio.

There are obvious complexities for nonprofit administrators here, ranging from the knowledge and expertise that one must have to make sound, ethical investment decisions, and the difficulty of making judgments about the social impacts of specific investment options. Nonetheless, the Comic Relief issue—precipitated by a Comic Relief trustee, Duncan Bannatyne, who discovered that his charity was parking its reserves with gun, alcohol, and tobacco makers and distributors—is quite relevant to U.S. charities, regardless of their size.

  • In the U.S., there are efforts, as reported here, to get large nonprofits such as universities to divest from fossil fuel firms, private prison operators, companies with bad labor rights track records, and firms that do business with Israel’s occupation of the West Bank. It is entirely legitimate to ask what charities of all kinds, not just colleges and universities, do with the investment of their reserves and fund balances. We would guess that many nonprofits might be surprised and nonplussed by what they might find about their own investments.
  • Some nonprofit advocates fret that by pursuing a regime of socially responsible investment, charities are risking a strong return on investments that could be used to further their charitable missions. To the contrary, there has been a significant growth of social investment funds whose returns sacrifice little if anything when compared to other conventional investments, much less guns, alcohol, and tobacco. The list includes Calvert, Domini, Pax, Parnassus, and several others.
  • It is next to impossible to research the investments of most charities based on the chaotic, incoherent, meant-to-deter presentation of investments on Form 990s. While GuideStar is able to present much information about nonprofit revenues and expenditures and the Foundation Center presents good information about foundation grants and increasingly about PRIs, there’s no good source that compiles and sorts information in an accessible manner about how nonprofits, big or small, invest their charitable assets. It’s time to make that information open to reasonable review by the those members of the public who might be concerned whether charitable assets are being devoted to less than charitable investment priorities.

It’s not a joke for Comic Relief or U.S. charities. The issue of how nonprofits in the U.S. deploy their investment assets is studiously ignored in most commentaries on charity ethics, responsibility, and accountability. It’s worth serious discussion here in Nonprofit Quarterly and in meetings and convenings of operating nonprofits and grantmaking foundations.—Rick Cohen

  • Angie Fidler

    As a CPA who specializes in nonprofit tax, I agree with the underlying theme of this article. As a point of clarification, I don’t believe that “meant to deter” is the most acceptable description for the reporting of investments on Form 990. The IRS does not require details of publicly traded investments since their values are readily determinable, which is the main point of the balance sheet. While ethically this is a best practice, it cannot be mandated. Additional questions could be added to the Form 990 to provide clarification and transparency in this area. I think you should be careful how you are wording your article to reflect that the majority of nonprofits are doing the community a huge service, functioning at bare minimum, and striving to be ethical. “Meant to deter” does not imply any of those things. Don’t let a few bad guys ruin it for the majority.