Many people will have heard of divestment in fossil fuels by now. Last year the Church of England made headlines when it announced it was abandoning investments in oil and gas firms. Earlier this year however, it was under scrutiny in a Channel 4 documentary Joe Lycett Vs Sewage which called on the Church of England to also divest from polluting water companies too.

While divestment can have impact, it’s not the only option available to organisations who want to be responsible and align their investments with their mission and values. Investors have a lot of power for social change, and not just through the obvious donation or social investment routes. 

Knowing what investments you own and in what companies is an important first step. Most charities and foundations use asset managers to invest their money in funds to increase the value of the charity’s endowment. But this can mean they don’t know exactly where their money is being invested. So, the first step is to get informed.

Using your investor power

Through the Charities Responsible Investment Network (CRIN), charities and foundations, can take action (individually and collectively) to make sure their investments are aligned with their mission and values. For instance, a foundation supporting work to end child poverty in the UK, may compromise its mission if it invests in companies with poor labour practises (which could be exploiting children).

Asset managers, who manage investments for multiple charities, will likely have a bigger stake in a company than any single asset owner and so have greater leverage to influence the company, including by co-filing resolutions and voting on them.

Unfortunately, asset managers aren’t taking strong enough action targeting companies who are harming people and planet: in 2023, just eight out of 257 social and environmental resolutions passed

Both the asset manager and the ultimate owner of the shares, the charity or foundation, can ask questions directly at company annual general meetings (AGMs) or file shareholder resolutions. A resolution could, for example, ask companies to adopt targets to eradicate child labour, or to issue a climate transition plan.

How the world’s largest asset managers vote on the ethical issues

Many CRIN members use ShareAction’s research on how the world’s largest asset managers have voted on environmental and social resolutions, to see if their managers voted in line with the charity’s values.

Equipped with this knowledge, pre-voting season (April-May), charities can move asset managers towards voting more progressively by asking them to vote for specific resolutions.

This can be incredibly impactful – following pressure from one of our members, Esmee Fairbairn Foundation, and their investment consultants, a large global fund manager changed its firm-wide voting policy in favour of resolutions addressing climate change by default.

Switching to social and environmental investments

If companies refuse to take action, asset managers should take stronger measures, such as voting against the re-election of company directors.

Is your foundation using its share holder power?

If none of this yields results, then an investor shouldn’t cling on to their holdings.

Some CRIN members have red lines on industries like fossil fuels, asking their managers to screen out any company that derives a high proportion of income from this industry.

Some might divest their existing shares, or take a ‘divest debt, engage equity’ approach: denying the company new money (for example, corporate bonds) has bigger consequences than divesting shares which continue to be traded between investors on the secondary market.

Charity investment managers regularly vote against ethical policies 

Whether engaging on their investments or divesting, when respected investors, like charities,  join together and make their actions public, they can influence other investors as well as social norms. Through divestment, they could effectively withdraw companies’ social license to operate. 

Unfortunately, asset managers aren’t taking strong enough action targeting companies who are harming people and planet: in 2023, just eight out of 257 social and environmental resolutions passed. Many ‘charity focused’ asset managers aren’t necessarily better than their peers: the top-scoring manager voted for 99 percent of resolutions, whereas one asset manager popular among UK charities voted for just 23 percent.

ShareAction’s latest survey also found that 44 percent of surveyed asset managers had not recently used stronger tactics such as to divest, reduce holdings or refuse to purchase new debt.

Foundations’ collective investment potential

Some CRIN members have come together to jointly engage one asset manager they share to push for higher standards. Ultimately a powerful tactic is to divest from your asset manager – as some CRIN members have done. Friends Provident Foundation, one CRIN member, has been very public about their expectations for asset managers.

When organisations focused on positive social and environmental impact come together, their power to influence our financial system is formidable.

Louise Eldridge is Senior Engagement Manager at ShareAction, an NGO focused on responsible investment. It coordinates the Charities Responsible Investment Network.