Front cover of 'An Inconvenient Youth' report. Green background with a large box with the lid open. Inside are connected lights. Two young adults sit on the edge of the box looking in. The text reads: An Inconvenient Youth. How uncomfortable questions helped move £20 of charity investment.
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Foundations moving £20 million to investment funds that prioritise future generations urge others to follow suit

A number of charitable foundations have committed to move £20 million of invested funds to more sustainable investment service providers (ISPs) – and a new report reveals how. Titled ‘An Inconvenient Youth: How uncomfortable questions helped move £20m of charity investment’, the report showed that whilst some third sector organisations are currently investing in activities that don’t align with their own missions it is possible to balance impact, risk and financial returns when investing in funds that generate positive impact for future generations.

 

‘An Inconvenient Youth’ details the findings of the Endowments Investing Challenge (EIC), led by Friends Provident Foundation, The Blagrave Trust, The Children’s Society, Cripplegate Foundation, Joseph Rowntree Foundation and the Vivensa Foundation. They set out to find an investment service provider for millions of pounds of third sector investment, with the help of a Future Generations Panel made up of seven young adults. Overall, the group wanted a bold portfolio prioritising positive social and environmental impact for future generations.

 

The report found a challenge in creating positive impact on future generations, whilst also maximising financial return in portfolios and minimising financial risk. However, despite these challenges, there is a way to carefully balance impact, risk and return.

“As endowed charities we know that endowments are the cornerstone of our financial resources, deeply embedded in the financial system. If we are to use our resources in service of future generations, we must ensure our investments embody that aim.”
Danielle Walker Palmour
Director of Friends Provident Foundation.

In the Panel’s role representing younger and future generations, they demanded accountability from both ISPs and encouraged asset owners to think about the impact of their investments.

 

The report calls for more charitable foundations to engage with ISPs on topics that matter to young people and on investment in sectors that do not align with their missions. ISPs need to address topics such as genocide, conflict and breaches of international law in their offerings to third sector organisations – and asset owners should feel confident asking challenging questions.

“The Future Generations Panel were an inconvenient youth, in a crucial way. They had high demands for the level of impact they expected, asked uncomfortable questions to ISPs, and challenged the way asset owners think about their investments. Similarly, asset owners can and should be an inconvenient investor to ISPs: engaging robustly on ethical issues, acknowledging any trade-offs and asking for products that deliver high impact alongside reasonable financial returns. These conversations within the third sector are a start, and we know that risk, return and impact can be balanced to create real change for the way we manage investments within the sector.”
James Anthony
Social Investment Portfolio Manager at Friends Provident Foundation

The report’s other findings included:

 

  • Despite the Magnificent 7 – a group of seven high-performing US tech companies including Apple, Microsoft, Nvidia, Meta – not qualifying as impact investments, most ISPs used the MSCI World Index – where the Magnificent 7 makes up over one-fifth of the portfolio – to benchmark impact. Disappointingly, several applications had high allocations to these stocks, some as much as 30%.
  • Pay gaps remain a major issue. Of 22 ISPs reporting UK median gender pay gaps, only two were below 20% and nearly all were far worse than the 12.8% UK average. Just six applicants reported ethnicity pay gaps, despite upcoming legal requirements likely to require many of them to do so. Transparency was poor, with most ISPs only reporting what is required by law.

Overall, 60 applications were received as part of the EIC, from 55 ISPs, spanning seven countries and representing over £11.5 trillion in assets under management. In March this year, following a presentation and a live audience vote guided by the Future Generations Panel at the Barbican in London, Triodos Investment Management won the vote. The charitable foundations have committed approximately £20 million of investment, with £12 million to Triodos.