An interesting and common question over trustee fiduciary duty was raised earlier this week when BBC’s Panorama found “millions of pounds” donated to Comic Relief between 2007 and 2009 were invested in funds with shares in tobacco, alcohol and arms firms. This, it added, included £630,000 in weapons manufacturer BAE Systems, £300,000 in the alcohol industry, primarily Diageo, and £3m in three different tobacco companies.
The initial reaction is to be shocked, but on second thoughts should we really be surprised? Just looking the two company names – BAE Systems and Diageo – there is little doubt that other institutional investors, including other charities and pension funds, will be in a similar position. Many funds opt for a passive equity exposure and through index trackers the vast majority of institutional investors are likely to have exposure to these stocks because both BAE Systems and Diageo are listed in the FTSE 100.
Market cap benchmarks have a lot of critics, but these indices form the core of a lot of portfolios, not least because they offer a cheap and efficient proxy for the market and active managers often tend to underperform the benchmark they set. But not every fund is in the same position as Comic Relief. Is it really right if, in the case of Comic Relief, money that has been donated by the British public for good causes such as supporting war-torn areas of the world is then invested in an arms manufacturer and seen to be profiting from conflict?
Obviously not, but the difficulty is that the trustees have not actually done nothing illegal. As Comic Relief pointed out in its response to Panorama: “All of the decisions trustees have made over the years, including those on investments, have been made entirely to make sure that we can do the most good for the thousands of vital projects we support. Our policy in this area is clearly within Charity Commission guidelines.”
This episode highlights how charity investment is often complex and contentious, raising questions around ethics, morality, transparency, best practice and stewardship. A charity should be seen to invest ethically and in a way that garners public trust, but trustees also have a duty to invest the fund to achieve the best return.
Comic Relief has announced a full review of its investment strategy and no doubt the fund will now be closely monitored, which may well see contentious stocks screened out, but it will be interesting to see where it draws the ethical line.
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