Charities tighten investment criteria as ESG focus sharpens

ESG investment will become more important for charities over the next five years as they add further portfolio exclusions, despite concerns about the ability of their investment management advisers to consistently meet their ethical requirements, according to a new targeted study from Rathbones, one of the UK’s leading wealth management groups.  

The survey of 100 UK charity board directors, finance directors, investment managers and investment directors with a collective £3.7 billion of equity investments found that when selecting investments, more than nine in 10 (92%) say it is important that they have strong ESG credentials. It found that over the next three years half (50%) of senior charity executives say ESG will become more important when selecting investments, with a further 47% saying it will become significantly more important.

This acceleration comes amid an intensifying conversation of the future of ESG, with detractors seeking to diminish its importance. In a reflection of the shift, the research from Rathbones, which recently launched its new Rathbones Charity Growth & Income Fund, also showed that almost half (47%) of the charity executives surveyed say that their list of investment exclusions has increase over the past two years, with environmental degradation the top exclusion.

However, only 6% of charities say that they are very effective at screening out potential investments that don’t meet their exclusion policy. Around three quarters (78%) say they are quite effective and 16% only rate their charity as ‘average’ at screening out potential investments that don’t meet their exclusion policy.

Andy Pitt, Head of Charities at Rathbones, said:

“Despite increasing noise around a move away from ESG, our research shows that this is more important than ever for charities, and charity leaders are increasingly wanting to align investment portfolios to their values and purpose.

“This growing emphasis on ESG isn’t just about meeting regulatory expectations or keeping pace with peers – it reflects a deeper commitment to protecting mission integrity. Charities are telling us they want partners who can provide tailored, values-driven investment solutions that go beyond simple exclusions, and offer proactive strategies that support long-term, sustainable impact.”

The growing shift towards ESG puts pressure on investment management advisers working with charities, the research found. Currently around a third (35%) questioned say investment managers’ ESG credentials are very important when awarding investment mandates, with 62% saying they are quite important. Just 3% believe ESG credentials will remain at the same level of importance over the next three years.

Worryingly, all of the senior charity executives surveyed said they are concerned about the ability of their investment management advisers to consistently meet their charity’s ethical requirements. Of these 59% say they’re very concerned about this. Only 16% of charities surveyed say their investment management firm offers them a very bespoke service for their charity’s specific needs.

Table showing the percentage of charities with exclusion policies around certain areas of their investment policy:

Rathbones has been managing money for charities for more than 100 years and supports more than 3,000 organisations nationwide, with portfolios ranging from £10,000 to more than £100 million.