Responsible investing for military charities

Trustees of military charities may express a disinterest in ethical investment considerations. This could simply mean that they are not concerned about adopting common exclusions, such as fossil fuels, alcohol, tobacco and armaments.

Military charities who have opted to swerve ESG related investments run the risk of not reflecting current views expressed by both the Ministry of Defence and the Charities Commission. Other military charities, who count themselves as ethically conscious investors, are invested in collective, non-bespoke, pooled investments that screen out all weapons and defence related sectors, as well as oil, alcohol, and tobacco. This approach could be too heavy handed.

The Russian invasion of Ukraine and the threat of a Chinese invasion of Taiwan has been the final confirmation that the post-cold war peace dividend has come to an end. The defence of Europe and key democratic and liberal values are now at the forefront of the political agenda. The rising geopolitical risks and the shift towards a more divided world has already had a significant impact, including a renewed focus on energy security, onshoring key industries, a technological superiority and increased defence spending.

We believe that it is best practice for clients to have policy statements and for these statements to be more explicit when dealing with investments in controversial areas. Defence stocks carry more risk and responsibility than other sectors. Best practice suggests that the trustee’s position should be codified to ensure transparency and demonstrate that it can be ethical to invest in defence companies.

Evelyn Partners’ own responsible investment philosophy sets a high bar before investments are made in controversial areas but we do not impose our own ethical restrictions on clients. While we believe that the role of democratically elected governments is to define the legality of products and trade, it is up to individual charities to determine what activities are consistent with their own objectives.

The challenge is finding the right balance between maximising the probability of achieving your target financial goal and ensuring your investments are in line with your charity’s values and purpose. At the same time, the challenges posed by disclosure shortcomings and subjectivity have to be navigated carefully. Knowing when to set clear rules and targets, and when a more qualitative and flexible approach is more appropriate, is essential.

Our bespoke approach allows each charity to reflect its unique characteristics, consider the complexity of the topic and the range of different opinions, and travel at a speed which the trustees and other stakeholders are comfortable with.