When most charities consider their banking relationship, they’re likely to focus on the day to day practicalities – in terms of costs, function, convenience and security. Far fewer consider the wider social and environmental impact of their banking arrangements, and how this relates to their charitable goals. But in doing so they’re potentially missing an opportunity to put their reserves to work in support of their mission, and worse could be unintentionally placing it with institutions that are undermining their work.

Mission connected investment

Conversations in this area have commonly focussed on the concept of Mission Connected Investment, where charities put their money into assets that actively further their cause as well as providing a return. The Charity Commission’s publication of CC14 in 2011 gave clarity to trustees around their responsibilities when making decisions on how to invest charities’ funds. Prior to its publication, the impetus was for charities and foundations to invest to achieve the best financial return within the level or risk considered to be acceptable, irrespective of the wider impact of those financial decisions. This led to a juxtaposition where for instance charities working in health may have invested in tobacco stocks, or conservation charities in fossil fuel companies, in order to achieve the best possible financial return, despite these investments working contrary to their mission and aims.

CC14 provided clarity on when it was acceptable to take lower than market returns when making programme related or mixed motive investment, with the aim of using a charity’s assets directly to further its aims in a way that may also produce some financial return for the charity. We are seeing some positive movements in response to the guidance. While there hasn’t been a comprehensive shift towards programme related investment by charities, at least it has opened the doors to conversations about it between trustees and charity investors. And the UK’s growing social investment market is testament to a wider understanding that investments can deliver social benefits alongside a financial return.

Beyond investments

But investments are only one part of the financial equation. For many charities, particularly those without significant assets to invest, their day to day banking arrangements are their greatest touchpoint with the financial system. And just as what you chose to invest in can impact on your charitable mission, so too can your day-to-day banking relationships.

The NCVO estimates that UK charities’ reserves are collectively worth around £49 billion, a considerable amount of which will be held as deposits in the mainstream banking sector. And while it’s with those banks they will be using that money to finance other organisations and enterprises. The impact of this finance be aligned with charitable goals in some cases, but much of it won’t be. Some will almost certainly be actively working against those goals.

Mission connected banking

We believe that a move toward mission connected banking, where charities place at least some of their reserves with the UK’s specialist social banks – Triodos Bank, Unity Trust Bank, Charity Bank and Ecology Building Society – could have a hugely positive impact on the charitable sector and society more broadly. Depositing money with these banks essentially keeps money within the social sector, creating a virtuous circle which provides more capital to finance charities, at a time when access to funding is such a key issue.

Mission connected banking is far more accessible for the majority of charities than programme related investment, particularly for those with smaller reserves. It also requires less of a commitment, as deposits are only tied up for as long as they’re on notice, rather than committed for a number of years as is often the case with social investment. And crucially it means that those deposits will be working to support the UK’s charitable sector, while still earning a return on your reserves.

Ultimately, choosing a bank that’s aligned with your mission can pay dividends for both you and your charitable goals.

words: Will Ferguson, head of communications, Triodos Bank

www.triodos.co.uk

This article first appeared in the Charity Times banking yearbook 2016