SUSTAINABILITY AND THE LAW – A NEW APPROACH IN WALES

Charities in UK must expect to be challenged on the alignment of their investments with their charity’s purposes, which requires they re-focus on good governance, ethics and the law.

Author: Julie Hutchison[i]

Sustainable practices can be created in a number of ways.  This blog looks at one example in Wales, where new legislation has created new norms when it comes to embedding sustainability into public organisations, including certain charities.  This blog looks at how the new law could apply to these charities in Wales, in the context of the kind of considerations which might apply to a charity’s investment portfolio. 

The new sustainability obligations are contained in The Well-being of Future Generations (Wales) Act 2015.  From an investment perspective, they create a direct link with what some may call ‘ethical’ investing.  This is explored more fully below. 

To explain more about the kind of ‘public body’ within the scope of the Act, it includes national bodies such as the Arts Council of Wales and some NHS Trusts.  Some of these organisations are also registered charities.  

What does ‘sustainable’ mean?

The starting point is that charities which are public bodies listed in the 2015 Act are to operate in a way which meets the ‘sustainable development’ definition in the Act.  This involves acting in a way which improves the economic, social, environmental and cultural well-being of Wales and in particular ensures “that the needs of the present are met without compromising the ability of future generations to meet their own needs.”  Moving on from this general statement, the Act then goes on to set out an operating framework with a focus on seven well-being goals.  Charities within the scope of the 2015 Act need to create well-being objectives which are designed to maximise how these seven well-being goals are achieved.  One can view some of these goals as supporting the transition to a lower carbon economy, as envisaged in the Paris Climate Agreement.   

From an investment perspective, there are a number of opportunities to reflect these well-being goals in the way a charity approaches its investment policy.  Three possible examples are set out below.

This illustrates three possible approaches.  It’s important to be mindful of the degree of interpretation which applies when dealing with this Act.  Equally, one could apply positive screening, for example, to favour companies active in industries which are supporting the transition to a lower carbon economy, or which have a positive track record on environmental impact.

I am already seeing requests for compliance with the 2015 Act, when public bodies go through a procurement process to identify and appoint a new discretionary investment manager.  In a recent invitation to tender, a Welsh public body charity sought to appoint “an Investment Manager to work with us to develop our investment portfolio ethically and in a way that ensures that the well-being goals are being addressed.” 

At one time, charities might have viewed ‘ethical investing’ as a luxury, not a necessity.  The landscape has changed here in Wales, where the requirement for sustainability has been translated into criteria which can have actionable outcomes.  The scope of the 2015 legislation goes far wider than investments, of course, but this practical example serves as a useful illustration of how a general set of principles can be applied in a specific scenario – in this case, shining a spotlight on the investment policy which is adopted for assets held by certain Welsh public bodies/charities. 

This post has been published on the Blog http://www.newwayssustainability.org/ 

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[i]Julie Hutchison is a Charities Specialist for Standard Life Wealth and is part of the Institute for Leadership and Sustainability (IFLAS), University of Cumbria, UK. On 4 October 2016, Julie will deliver a Lecture in Ambleside on: ‘Not-for-profit organisations at the intersection of governance, ethics and investment’.

The information in this blog or any responses to comments should not be regarded as financial advice.  Laws and tax rules may change in future.