More than money matters


Heather Lamont considers the changing landscape for charity investors and the organisations they support

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13th February 2020 by TFN Guest 0 Comments

You’ve only got to look at the events programme for The Gathering to be reminded of how wide a range of challenges voluntary organisations and social enterprises are dealing with. In all the years I’ve been part of The Gathering the list has lengthened as the third sector has evolved. It’s grown not just in scope, with a host of new participants, but also in the standards of governance, effectiveness and transparency that we expect of organisations with a key role to play in delivering services and improving the quality of life for communities across Scotland.

In recent years we’ve seen topics such as safeguarding, diversity and inclusion, digitisation and sustainability all come to the fore. Meanwhile the traditional challenges to do with money – how to get it, how to keep it safe, how to use it most effectively – are as prominent as ever.

Securing adequate funding will always be a challenge for some organisations, and if you’re one of those then you might look with envy at those with endowments and the luxury of a reliable income stream.

But endowed foundations and other charity investors have their challenges too. Internal and external stakeholders are asking questions about how they can be most effective in using their organisation’s resources, and increasingly the answers are not simply about investing in the same old way year after year and dishing out cheques to familiar causes.

Heather Lamont

Heather Lamont

Rather than just invest in traditional assets for financial returns and spend the money raised by making grants to other charities, some have tried investing directly in social enterprises. These new funding models can sound like no-brainers in principle, but can also come with unanticipated risks that threaten, rather than promote, sustainability.

Another big issue has been the collapse in interest rates, which have been at pitifully low levels for more than ten years. This has meant that the traditional way to follow a cautious investment strategy – moderating the risk that comes with stocks and shares by having a significant part of your portfolio in interest-bearing cash and bonds – now undermines investment returns so badly that you can’t spend nearly as much as you used to without threatening the long term sustainability of your work.

Charity investors need to look at risk in a different way, keeping the focus firmly on assets which help them to target the things that really matter – long term spending power in the face of inflation, and the charity’s own values and objectives.

Trustees are much more likely these days to want to avoid investing directly or indirectly in businesses whose activities are at odds with the charity’s own aims – ethical investment – and to want their voice as shareholders to be used to improve companies’ standards of environmental, social and governance behaviour.

Not all fund managers are equally well equipped to rise to these challenges. It’s not surprising, then, that some trustees are reviewing long standing relationships. They recognise that good governance requires them to focus on the financial resources the portfolio generates for charitable spending, without compromising on responsible investment or their organisation’s reputation.

Heather Lamont is director, client investments, at CCLA. She will be presenting the following events at The Gathering 2020:

Mythbusting for Charity Investors (Wednesday 19 February, 10-11am)

The Naked Treasurer (Wednesday 19 February 3.45-4.45pm, and Thursday 20 February 9.30-10.30am)