Newton Investment Management’s fifth annual Charity Investment Survey has revealed that 71% of charities see environmental, social and governance factors (ESG) as increasingly important, up from 62% in 2017.

Newton Investment Management (IM), part of BNY Mellon Investment Management (IM), surveyed 97 UK charities with combined investment assets of £11.4 billion, on their expectations for asset class returns, views on ethical considerations within investments, board composition and their views on how political events will impact their portfolios.

According to the survey, when asked about the effectiveness of engagement with companies on ESG issues, the majority of charities believe ESG engagement on company behaviour had a positive impact (92%) and would help companies improve their ESG credentials. However, the majority of charities think the impact on investment performance is likely to be negative.

Jeremy Wells, senior client director of Charities and Institutions, Newton IM, said:

Charities have long been at the forefront of socially responsible and ethical investing thinking and practice. Over the last five years we have noted a steady rise in charities’ desire to see their ethical criteria applied to investments held in pooled funds as well as those held directly – from 53% in 2014 to 70% in the latest survey. The charities surveyed clearly showed that it is important to take ESG factors into account when investing, and to engage to change company behaviours. When asked what they felt was the best approach to dealing with companies that score ‘badly’ on ESG criteria, by far the most prevalent response was to engage with or pressure a company to change its behaviour (73%), a response that was almost three times more popular than to exclude the company from an investment portfolio (27%).

Other key findings from the survey:

  • Performance: After reporting strong investment performance in 2017*, charities have reported more meagre returns in this year’s survey and are more cautious about future prospects. The average total return for charities was 4.2%, compared to 10.9% in 2017.
  • Brexit: The anticipated impacts of Brexit on charitable portfolios are increasingly negative, while some charities also fear it could hinder their charitable work. 83% and 82% think it will have a negative impact on capital and income respectively. Only 26% of charities believe that Brexit will not affect their portfolios.
  • Withdrawal rates: More charities appear to be making withdrawals at a higher rate than they regard as sustainable. In 2018, 23% of charities took a withdrawal of 5% or more to spend on their charitable activities, compared to 13% of charities in the 2017 survey. This has pushed the average withdrawal rate to 4% in 2018, up from 3% in 2017 and above the sustainable withdrawal rate, which charities believe is 3.4%.
  • Asset allocation: On average, charities’ exposure to UK equities continues to be in decline (down 13% from 2017), as do allocations to both UK and overseas bonds. However, allocation to overseas equities (up 33%) and property (up 11%) continues to drift higher.
  • Active vs passive: Charities remain strong supporters of active management approaches, although with smaller charities more likely to invest passively. The latest survey shows a growing proportion of charities only using active investment management strategies (70% in 2018, up from 66% in 2014), but also a rise in charities only using passive strategies (8% in 2018, up from 2% in 2014).
  • Regulation: In the 2018 survey three quarters of charities felt the legal and regulatory environment had become tougher over the last 3-5 years, with 63% also sayin that this tougher environment had increased their charities’ costs.
  • Diversity: While the UK charity sector leads the way on gender diversity at trustee board level (women account for 37% of board members), the survey results suggest diversity of ethnicity and age is less well represented, just 4% of trustee board members in 2018 are black and minority ethnic (BME), while 7% are under the age of 40.

Notes to editors:

This independent survey was conducted across leaders and decision-makers in the charity sector, between late April and early July, with a record date for all data of 31 March 2018.  Representatives of 97 UK charities, with combined investment assets of over £11.4 billion, participated. The results will be shared across the broader charity sector in a series of events.

Newton Investment Management Ltd (NIM) is a London-based global investment management subsidiary of The Bank of New York Mellon Corporation. NIM and Newton Investment Management (North America) Limited (NIMNA) are authorised and regulated by the Financial Conduct Authority.  NIMNA is also registered with the US Securities and Exchange Commission. Registered address, The Bank of New York Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England No. 01371973 (NIM) and No. 2675952 (NIMNA).

With assets under management of £50.8 billion as at June 30, 2018, Newton provides investment products and services to a wide range of clients, including pension funds, charities, corporations and (via BNY Mellon) individuals. News and other information about Newton is available at www.newtonim.com and via Twitter: @NewtonIM.

BNY Mellon Investment Management is one of the world’s leading investment management organizations and one of the top U.S. wealth managers, with US$1.8 trillion in assets under management as of June 30, 2018. It encompasses BNY Mellon’s affiliated investment management firms, wealth management services and global distribution companies. BNY Mellon Investment Management is a division of BNY Mellon, which has US$33.6 trillion in assets under custody and/or administration as of June 30, 2018. BNY Mellon can act as a single point of contact for clients looking to create, trade, hold, manage, service, distribute or restructure investments. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation (NYSE: BK). Additional information is available on www.bnymellon.com. Follow us on Twitter @BNYMellon or visit our newsroom at www.bnymellon.com/newsroom for the latest company news.

Unless otherwise stated herein all information sourced by BNY Mellon as of 8 October 2018. This press release is qualified for issuance in the UK and is for information purposes only. It does not constitute an offer or solicitation of securities or investment services or an endorsement thereof in any jurisdiction or in any circumstance in which such offer or solicitation is unlawful or not authorized. This press release is issued by BNY Mellon Investment Management EMEA Limited to members of the financial press and media and the information contained herein should not be construed as investment advice. The value of investments can fall. Investors may not get back the amount invested. Income from investments may vary and is not guaranteed. Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA) or affiliated fund operating companies to undertake portfolio management activities in relation to products and services provided to clients of  BNYMIM EMEA or investors in  BNY Mellon funds. Registered office of BNY Mellon Investment Management EMEA Limited: BNY Mellon Centre, 160 Queen Victoria Street, London, EC4V 4LA. Registered in England no. 1118580. Authorized and regulated by the Financial Conduct Authority. A BNY Mellon Company.

* Source: Newton 2017 Charity Investment Survey

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