Post Office Orphans Benevolent Institution: how and why we switched to sustainable investing

Charities are increasingly seeking to align their investment strategy with their missions. They want to ensure that while their capital produces returns to fund current and future activities, it also delivers positive outcomes for people and the planet. Our research shows that in 2020 77% of charities have decided to implement a policy linking their investment strategy to their mission. This is up from 23% in 2010.

But what’s involved in the switch? Here a charity with roots in the 19^th century and a long history of investing to support its activities describes how and why it changed its investment strategy.

POOBI’s John Powell: our path to sustainable investing

The Post Office Orphans Benevolent Institution is a children’s charity, and our aim is to support our beneficiaries by generating income from our investments.

Since 2016 our charitable spending has increased by 40% and so we need our money to work hard to keep up with the growth of our giving. But we want our investments to grow in a way which matches our values.

We have a reserve of approximately £7 million made up of equities, bonds, property and diversifiers. In 2019 after weighing up our options we decided to move the entire portfolio into a sustainable fund offered by Cazenove Capital (see below).

Avoiding harm is one important factor.

As we are a children’s charity, we wanted to ensure our investments would cause no harm to children’s future well-being and health. Cazenove Capital does this for us by screening investments that could directly or indirectly impact on their futures. So holdings with links to gambling, tobacco, high-interest lending, pornography and other potentially harmful areas are avoided.

Actively contributing to positive change is also vital.

We want our invested capital to benefit society by supporting sustainable business activity, helping solve the world’s environmental and social problems. Our managers are actively influencing companies and other investors to improve the way they operate in terms of sustainable outcomes. We also support vital environmental and social projects, such as renewable energy generation and social housing, where our capital helps drive much needed progress.

Our investment of £7 million is joined by many other organisations’ funds and collectively we are becoming increasingly influential.

You may ask if this was the right commercial decision in terms of maximising returns from our investments. We are delighted with the performance of our portfolio to date, despite going through what must be one of the most difficult periods for investors in a very long time.

POOBI has always taken the approach of accepting risk in return for greater potential rewards. Given our long-term time horizon we can afford to ride out the short-term rises and falls of markets. POOBI’s long-term investment goal is to achieve a growth of inflation plus 4%, before we draw on the account – which is a stretching target.

Yet despite Covid-19 and other difficulties in markets, since June 2019 to September 2020 we have exceed our target return and maintain our existing level of distributions to support our charitable giving.

We can also measure the positive impact our investments are having. That’s because a part of our investment report expresses the portfolio’s social and environmental benefits in everyday terms.

For example, in the fight against global warming, we can see that the carbon footprint of our holdings is 85% less than the footprint of a broad basket of global equities**. So we know that by investing POOBI’s £7m of capital in this way our carbon emissions have been reduced by the equivalent of the energy used to power 70 homes for a year or planting 9,562 trees as seedlings and growing them for ten years. That’s a powerful message about the kind of world we want children to grow up in.

Cazenove Capital: our approach to meeting the needs of POOBI and other investors

The fund in which POOBI chose to invest was the Responsible Multi-Asset Fund (RMAF). The intention is for the fund is to achieve the financial objectives, whilst having a positive impact on people and the planet.

As John Powell describes, we set out to achieve this in a three-step “ABC” process.

Firstly we ensure we are Avoiding harm by excluding harmful sectors and integrating environmental, social and governance (ESG) factors into our investment selection process. Secondly we seek to Benefit society by selecting companies with sustainable business activities, and finally to Contribute to solutions by allocating capital to areas of social and environmental need.

We also use our influence to push companies, managers and policy makers to increase shareholder value and make progress towards the United Nations’ Sustainable Development Goals.

The fund’s strategy seeks a return of inflation plus 4% over the longer term, while distributing 4% per annum to support charitable expenditure.***

Compared to a basket of global equities, the fund can deliver three times the social impact* and 85% reduction in carbon emissions**.

*Social benefit is calculated using Sustainex, a proprietary impact measurement tool created by Schroders. MSCI AC World +1.8%; Portfolio +5.3%.

** Source: Carbon footprint is based on the average carbon emissions (tonnes CO2e) of portfolio companies held within the Responsible Multi-Asset Fund, weighted by their position size based on MSCI data. CO2 reduction does not include the impact of carbon offsets projects. Equivalency data EPA

***Target return is not guaranteed

Your capital is at risk when investing.