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More positive outlook returns for charity investments


A survey into the investment strategies of 82 UK charities with combined investment assets of £8.8 billion has revealed that uncertainty about the future has significantly lessened, with more charities this year feeling more positive about the medium and long-term future of their investments, with a focus on investing responsibly.

According to the survey by Newton Investment Management, in 2020, in the midst of the disruption caused by the pandemic, 11% of charities stated that they did not know what level of return to expect over a 3–5-year timescale, with the figure reaching 13% over a 10-year time horizon. However, 2021 has seen these figures return to their previous norms, with only 5% and 6% of charities unable to estimate their annual total returns over the next 3-5 and 10 years respectively.

Investment returns bounce back

Following low investment returns seen in last year’s survey, charities have also seen their investments bounce back in 2021, with the most significant performance gain in portfolio value since 2017. The average percentage performance gain has more than doubled from 5% to 11% from 2020 to 2021. 52% of charities reported performance gains of 9% or higher in 2021, a 35% increase on 2020.

ESG comes to the fore

Charities have also never felt it more important that environmental, social and governance (ESG) investment factors are considered in the management of their investment portfolios. In 2021, 85% of charities feel that ESG factors are either very or quite important in the management of their portfolio. This represents a 3% rise year on year, while over the longer term; from 2015 to 2021, the proportion of charities that feel that ESG factors are important has grown from 61% to 85%.

82% of charities now believe that is their responsibility to think about climate change specifically, a figure which has risen 18% over the last two years. Furthermore, 50% of charities in 2021 state that they are prepared to accept compromised levels or patterns of return in exchange for sustainable, responsible investment practices.

There has also been a shift from engagement to divestment when it comes to ensuring that climate change factors are considered in the management of portfolios. From 2019 to 2021, the proportion of charities considering engagement to be the best approach has fallen from 70% to 54%, while the proportion believing that divestment is the best approach has increased from 24% to 35%.

And, while the proportion of charities with ethical exclusion policies in place appears to have plateaued, the nature of these policies is becoming increasingly broad. Tobacco remains the most commonly barred type of investment, excluded by 87% of those charities with exclusion policies. Armaments, gambling and pornography are also each excluded by a majority of policies, while 48% of policies now exclude fossil fuels, up from 36% in 2020.

Commenting on the findings, Alan Goodwin, head of investment relationship management at Newton Investment Management said: 

“Following the unprecedented impact of the pandemic on UK charities in 2020, this year has been a story of resilience and recovery. The impact of the pandemic drastically reduced compared to last year, and the vast majority of charities remained steadfast in their investment strategies, with an increased lens on their obligations to invest responsibly. It is positive to see that while charities continue to suffer significant disruption from the coronavirus pandemic, this year’s survey reveals a more positive outlook for the majority of charities in their investment strategies.”

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