Reflection point: the 2023 Newton Charity Investment Survey
After a year characterised by considerable volatility for the charity sector, 2023 has seen a continuation of the challenging backdrop, resulting in some divergence in how charities are approaching the world. While inflation remains a universal concern and lower levels of returns are a widespread issue, charities are experiencing varying pressures as a result of the cost-of-living crisis.
Meanwhile, although charities are becoming more concerned about the threat of climate change, their views on environmental, social and governance (ESG) issues in general are changing, with ethical exclusions becoming more commonplace, and approaches to net zero differing.
The Newton Charity Investment Survey has now delivered ten years of unique industry insight and trend comparisons. It covers diverse aspects of the management of charitable portfolios, and provides an industry benchmark to see how aligned charities’ investment experience and intentions are with those of their peers. Key findings from this year’s survey include:
Economic pressures and concerns about the future
The vast majority of charities are still experiencing some form of pressure or negative impact from the cost-of-living crisis. 59% of charities have seen an increase in demand from last year, with 63% stating that demand is coming from both new and existing beneficiaries. However, the form these impacts are taking varies.
While the negative effects of the cost-of-living crisis are being felt widely, there is hope for the future within the sector, although uncertainty remains. 52% of charities do not think that the cost-of-living crisis will have a lasting impact on their investment policy, and a further 27% simply do not know. For those that do think there will be longer-term implications, two-thirds are re-evaluating their reserves policy.
Responding to a crisis
Charities are demonstrating uncertainty in terms of what they consider to be a sustainable withdrawal rate for their portfolio. 70% of charities had not set any withdrawal rate this year, and among those that had, there was no clear agreement on where it should be set. A growing proportion of charities are now unsure about what a sustainable withdrawal rate is likely to be over the long term – over a fifth of charities simply do not know where to set their rate.
Charities’ returns have faced a severe downturn this year; however, they appear to be adapting to these lower levels. 35% of charities have experienced negative returns, and a further 35% have seen returns of between 0-3%. Nevertheless, the proportion of charities that say investment performance has not affected spending has remained relatively stable at just under 80%.
Investing for a better future?
Ethical exclusion policies are becoming more commonly used by charities, but their approaches are increasingly targeted. The proportion of charities with an ethical exclusion policy reached 64% this year – the highest we have seen over the last ten years of conducting the survey. However, the breadth of these policies has diminished, as charities are now focusing on more specific areas, rather than taking a blanket approach.
Charities are divided on how best to approach companies that are underperforming in terms of ESG issues, with half believing that divestment is most suitable and 36% opting for engagement. However, charities’ approaches to climate change factors paint a different picture, with 66% of charities believing that engagement is the best approach to ensure that companies in their portfolios are aligned with their climate change values.
Diversity and faith in the charity sector
2023 has seen notable growth in the proportion of charities that feel it is important for their trustees to reflect their beneficiaries and their requirements. After falling to 66% last year, this figure is now up to 81% this year. However, there has been a 5% decline in the proportion of respondents that think it is important that investment managers demonstrate diversity.
More about the survey
This year’s survey included 86 charities, with a combined £3.3bn in assets under management. Fieldwork took place between 2 May and 10 July 2023, with 31 March 2023 representing the record date for annual investment performance data.
View the full 2023 Newton Charity Investment Survey.
For further information, please contact Sarah Dickson, head of charity business development, Newton Investment Management.
Email: Sarah.Dickson@NewtonIM.com
Important information
These opinions should not be construed as investment or any other advice and are subject to change. This document is for information purposes only. Any reference to a specific security, country or sector should not be construed as a recommendation to buy or sell investments in those securities, countries or sectors. Please note that holdings and positioning are subject to change without notice.
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