Debra Morris is Director of University of Liverpool’s Charity Law & Policy Unit
“Last week, the Archbishop of Canterbury, Justin Welby castigated the payday loan company Wonga and suggested the Church of England would ‘put it out of business’ by helping local credit unions to compete with it. He soon had to admit to his embarrassment when the Financial Times exposed the fact that the Church Commissioners, through their pension fund, were actually investing in one of Wonga’s key financial backers.
The Church Commissioners’ investment guidelines state that money should not be put into companies where 25% or more of their business is connected to high interest rate lending. This turn of events proves that this is easier said than done.
Anathema to objectives
Justin Welby later said, ‘these things happen… It’s an incredibly complex business’ and this is not the first time that charities have been caught out investing in companies whose activities are completely anathema to their objectives. For example, health organisations have previously been found to have invested in the tobacco industry, causing widespread embarrassment at the time.
What does the law have to say about this?
As a registered charity, can the Church Commissioners take into account ethical considerations as their primary concern when making investments? Those ultimately responsible for investment decisions within a charity are its trustees and they are under legal obligations to act in the best interests of the charity.
Over the years, there have been cases that have gone to court to weigh up these complex issues. In fact, one important case involved the Church Commissioners when, in 1991, the then Bishop of Oxford, Richard Harries, sought to challenge the investment policy of the church. Whilst the policy already avoided investment in alcohol, gambling, newspaper, tobacco and weapons companies, the Bishop of Oxford wanted to add investment in companies with holdings in South Africa to the banned list (due to the Apartheid regime). The court found that there was no requirement to modify the existing ethical policy.
The judge noted in this case that ‘most charities need money; and the more of it there is available, the more the trustees can seek to accomplish.’
Importantly, though, the judge found the law will support an ethical investment strategy where a particular investment conflicts with the aims of the charity, or where the investments might otherwise hamper the charity’s work. This might be because potential recipients of aid are unwilling to be helped because of the source of the charity’s money or because some of charity’s donors are deterred from making donations.
The regulator of charities, the Charity Commission, has interpreted and applied this decision over the years and has recently published new guidance for charities on their investment strategies.
Programme Related Investment
Interestingly, this distinguishes between normal investment by charities (where the foregoing rules will apply) and what is described as Programme Related Investment (PRI). This is where a charity uses its assets directly to further its aims in a way that may also produce some financial return for the charity. PRI is different from financial investment in that the justification for making a PRI is to further the charity’s aims (not to make money). By using PRI, a charity may make low interest loans in order to support its own objectives.
If the Church really wants to put its money where its mouth is, instead of simply opening up its buildings for credit unions to trade from, it could, through PRI, consider financing some of their work. That may go some way to building a Big Society.”
