No foundation trustee off the hook for £60bn investment decisions - ACF report

Charitable foundations in the UK must do the hard work of interrogating their investment strategy to make best use of their endowment “super-power”, according to a report published this week.

Investment: The Pillars of Stronger Foundation Practice draws on 18 months of research among representatives from more than 100 foundations. 

Published by the UK's Association of Charitable Foundations, it sets out seven characteristics that foundations should pursue, including prioritising their mission when setting investment objectives, holding investment managers to account, and seeking to influence the investment behaviour of others.

And, while trustees are often considered as either knowledgeable about the foundation’s work or as finance experts, the report’s authors argue that “each and every trustee” has “equal responsibility for investments as a core function of charity governance”.

Each and every trustee has equal responsibility for investments as a core function of charity governance

Reverse due diligence

Among the many areas raised in the report is the value of transparency and responding to scrutiny. Authors point to a “a small but noted increase” of fundraising charities conducting reverse due diligence – refusing or returning donations from foundations where they disagree with the source of the foundation’s wealth. 

“A stronger foundation recognises that grantees are responsible to their own stakeholders, and that foundations have a duty of care to inform grantees about their source of income so that grantees can make informed decisions about accepting funding,” write the authors.

Foundations have a duty of care to inform grantees about their source of income

Carol Mack, CEO of ACF – whose 400 members collectively hold assets of around £60bn and give more than £3bn each year – said: “Society is demanding ever greater transparency from institutions and asset holders, about the sources of that wealth and how it is invested and stewarded. New approaches to creating a sustainable economy are emerging and the climate crisis means action is both necessary and urgent. Foundations will need to move forward to avoid falling behind.

“Now is the time to take action. With this offering, we aim to show how foundations of any size can approach their investments with mission at the forefront of their thinking, whatever that mission may be. Thinking about investments is not the preserve of large foundations, nor of those trustees with specific expertise; it is relevant to all foundations looking to maximise the impact of their resources.”

  The seven pillars of a stronger foundation are listed as:

1. Understands that responsibility for its investments sits with each and every member of the trustee board
2. Prioritises its mission when setting its investment objectives
3. Engages with and holds to account those managing its investments
4. Pursues transparency and responds to scrutiny
5. Actively seeks a variety of research and views to inform its approach to investment
6. Reviews its own time horizon
7. Seeks to positively influence the behaviour of others in relation to investments

The Charity Commission for England and Wales is currently examining its guidance on investment, and has said it will consider in particular the statement that trustees have a duty to ‘maximise’ financial returns, which has been criticised as causing potential uncertainty alongside the expectation to also consider the charity’s aims.

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