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Does it Matter Where a Charity Get Its Money If It Goes to a Good Cause?

Rachel Dean Charity

In 2007, the Bill & Melinda Gates Foundation donated $218 million to prevent polio and measles in the Niger Delta. But at the same time, the Los Angeles Times showed that the organization also invested over $400 million in oil companies that were allegedly responsible for exacerbating those very same health problems in the region. The $400 million is a drop in the bucket compared to its $43 billion asset trust endowment, but it nevertheless poses an interesting question:

Does it matter where a charity gets its money, as long as that money is going to a good cause? What if a charity can get a better financial return by investing in industries and companies that run counter to its mission? Does it matter? These are the questions charities increasingly have to ask themselves after a long string of cases where charities’ investments have been shown to contradict with their donations and grants.

It’s a particularly salient issue because as of September 2014, active charity investments earned £3.6 billion annually from £63.8 billion in reserves. Even smaller charities with a 5 or 6 digit annual income make 15% of their revenue from investments like these. And, as in the case of the Bill & Melinda Gates Foundation, nonprofits that spread their money across a wide portfolio of investments are not immune from targeting by the press.

On the one hand, those who invest a charity’s money have a fiduciary duty to invest in order to get the best possible financial returns. But, according to the Charity Commission’s Guide for Trustees on investment matters, CC14, trustees should strike a “balance between risk and return that is right for their charity” which can include “environmental, social and governance factors.”

As long as trustees agree on the balance of risk and return, the law is on their side. But a recent study found that 78% of people would think of worse of a charity that had funds invested in activities contrary to its mission. As investment is increasingly on the radar of the donors who give to these charities, the risk of a negative change in public opinion will undoubtedly impact these charities’ investment decisions.