Tonight’s BBC Panorama programme plans to air some of the charity sector’s dirty laundry. One of the stories reaping coverage follows news that from 2007 – 2009 Comic Relief’s investment management approach led to a pretty dodgy looking portfolio.

It would be a shame if some of the excellent grant-making by Comic Relief gets overlooked in all the blaze of publicity around their investment strategy. However, what charities do with their investments is a very important point, and I sometimes worry that the pursuit of financial returns may conflict with social aims. Comic Relief’s current investment policy is clearly set out in its accounts; it’s  sophisticated, but has a definite moneymaking focus.

So my reservations are twofold:

i) Does Comic Relief need £200m+ on the balance sheet if the annual charitable spend is £80-100m? ie, could it up the spend and reduce its investments? I can see the attraction of prudence and ensuring it can meet programme commitments, but with an excellent fundraising track record perhaps it could view the future with more confidence!

ii) And if it really does need to hang onto £200m, must this resource only have a financial focus?

Defending the criticisms today, Peter Bennett-Jones, the charity’s former chair,  blamed the law for placing an obligation on trustees for the ‘best possible financial returns’.

This is one interpretation, and one with which I beg to differ. Charity trustees must act in accordance with the charity’s objects. Trustees must also safeguard the charity’s assets. However most would agree that this should be interpreted as using them for good, and in accordance with the charity’s objects, not in opposition to the charity’s objects.

The Charity Commission has gone to great lengths to issue its CC14 guidance , designed to navigate the legal murk around these issues, and their success in de-mystifying this area depends upon how much of a legal pedant you are. In the guidance, the Commission distinguishes between the need to maximise financial returns (without taking undue risk) when the investment is a ‘financial investment’, and the greater flexibility allowed when it is a ‘programme related investment’.

Where the charity has a perpetual endowment, it should be a financial investment –capital erosion is a definite no-no with perpetual endowment. But a charity can put its free capital into a programme-related investment pot, and here the charitable foundation is free to use its funds flexibly, for grants, programmes, and the pursuit of its objects and mission.

So if I were a trustee of Comic Relief these are the options I’d be arguing for:

Designate the bulk of the funds as programme-related. I’m not convinced Comic Relief has to ring-fence its cash and investments in an endowment, nor does its investment policy suggest this. I believe they could be more adventurous. The sensitivity over needing to meet future running costs seems inhibiting. Most charities don’t sit on vast reserves and are honest about the fact that every pound raised costs money to raise and spend responsibly.

If Comic Relief designated its funds as programme-related, with the explicit purpose of serving its objects, this would enable the charity to keep its options open: it could pursue exciting social investment opportunities that match mission as well as earning a modest return. Along similar lines, a family foundation that NPC advises views investing in market solutions as offering the best social returns while at the same time conserving part of the foundation’s capital.

Keep the investment portfolio approach to managing the funds where there is a real case to be , but set ethical criteria and appoint investment managers who specialise in ethical investment.

If Comic Relief really has to sit on a pile of cash, then at least invest it ethically—not least because in some areas of risk, ethical investment is actually less dangerous. Had BP’s drilling operations been totally ethical, would Deepwater Horizon have occurred? To claim that you can’t make money if you strip out the bad boys is unconvincing.

Ethical fund management is pretty mainstream nowadays, with funds increasingly showing acceptable and competitive returns, some even beating their purely commercial peers. For example, Triodos have a standard sustainable investment product with a respectable returns track record (although I note the drinks multinational, Diageo, appears in the portfolio). So I’m sure Comic Relief can find something appropriate with a financial return.

Over the other side of the pond US foundations have grasped the nettle on this—for example, Jeff Skoll exited the Skoll Foundation’s investments in fast food in disgust when he produced the film ‘Fast Food Nation’.  And the KL Felicitas Foundation publicly lays out its impact investment policy in great detail and we can see from this that investments match mission. 

Comic Relief is a fantastic charity which does excellent work, so I hope all this media coverage doesn’t have an adverse affect on them. My recommendation to Comic Relief would be to get some impact investors or social impact gurus onto its investment committee, to perhaps temper the financial zeal with a little more enthusiasm for social impact.

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