How far do our values go?

Stephen Pittam

The central issue in the debate about the Bill and Melinda Gates Foundation’s investments is the extent to which endowed grantmaking foundations can and should apply their values to both of their two key roles:  managing the endowment in order to create an income, and spending that income through grantmaking programmes.

Most foundations are fairly clear about how to apply their values through their grantmaking, but much less so about how to apply them to the significant role they play as investors. Unlike the Gates Foundation, we at Joseph Rowntree Charitable Trust (JRCT) believe that we have a responsibility to apply our values to how we earn our income as well as how we spend it.

Reading about the vision and values of the Gates Foundation since the story of their investments broke, I realize there are more similarities between the Gates Foundation and JRCT than I had thought. I am particularly impressed by their 15 guiding principles. Several could easily appear on a JRCT list. Two of them stand out:

  • We demand ethical behaviour of ourselves.
  • Meeting our mission – to increase opportunity and equity to those most in need – requires great stewardship of the money we have available.

Guiding principles notwithstanding, Cheryl Scott’s 11 January statement published on the Gates Foundation website makes the case for remaining primarily a passive investor, with a concern for good corporate management and governance. The Foundation doesn’t see itself playing an active role in influencing the corporations in which it is invested. The Los Angeles Times articles highlight the contradictions that inevitably flow from this position.

As already mentioned, JRCT has taken a different view. We have developed a rigorous ethical investment policy[1] that requires our investment managers to focus on companies whose products and services are of benefit to humankind, with minimal harmful effects and an emphasis on meeting basic needs. Once invested in a company we continue to monitor its ethical performance, often engaging if breaches of ethical or environmental standards occur. We receive positive responses from companies, and at its best this kind of engagement can prompt companies to do better on a range of issues.

Occasionally, we will disinvest, making our views public. This has recently happened with our longstanding investment in Reed Elsevier, a publisher of academic journals, which acquired subsidiary companies that are involved in organizing exhibitions for the arms trade. Despite a three-year engagement with the company over the issue, we failed to persuade it to dispose of its defence-related business. We have sold the shares.

Our 25 years’ experience of operating an ethical policy has taught us many things. One is that ethical investment is not an exact science. We are advised by the Ethical Investment Research and Information Service, which screens all our investments on a quarterly basis. Our Investment Committee makes the decisions. In the many cases that are not clear-cut, we know the reason why we are invested or not.

Our experience also allows us to refute the case most often made against ethical investment: that investment returns will suffer. Our fund (now at £200 million) has outperformed its benchmark (FTSE All Share Index) over a 25-year period. In 2006, the return on the Trust’s main portfolio was 20 per cent against the benchmark of 16.8 per cent. This could be due to the skills of our investment managers, but in the long run it may well be that socially responsible investments will significantly outperform more conventional investments, as risks to reputation, environmental costs and sustainability become decisive factors in business success. Our approach involves some cost in terms of Trustee and staff time, but we judge this cost is worth paying.

If foundations are serious about tackling social injustice we cannot ignore the power of the corporate world, which is too often used to the detriment of individuals and communities. One strategy for change that JRCT has adopted is to support organizations that campaign for greater corporate accountability through our grantmaking programmes.[2] A second strategy is to use our own power as an investor.

Imagine what power foundations could exert if major investors like the Gates Foundation applied their interest in ethical behaviour to their role as investors?

1 See

2 One such grantee, the Tax Justice Network, publicized last month that $150 billion a year is taken from Africa through tax avoidance by giant corporations and capital flight using ‘a pinstripe infrastructure’ of Western banks, lawyers and accountants. 

Stephen Pittam is Secretary of JRCT. Email

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