Behind all the pantomime boos and cheers over Comic Relief’s investments the truth is rather more complicated

Comic Relief is doing something funny with your money.  Or should I say our money since I too invariably pick up the phone to give after one of the heart-tugging films in which Red Nose Day specializes and which this year raised £100 million for good causes. So the revelation by Panorama on BBC1 – the same channel which screens those fund-raising films – that the charity has some cash invested in companies which manufacture cigarettes, alcohol and armaments was a bit of a shocker since all of those wreak a toll on lives of many of the poorest people whom Comic Relief sets out to help.

This being the panto season much of the subsequent hoo-haa has involved booing and cheering at stereotypes.  Panorama sprayed the charge of hypocrisy at other charities too, with a range of accusations over issues some of which seemed woefully ignorant to anyone who knows anything about international development. At the other end of the scale Russell Brand chipped in at the end of the week by Tweeting: “Comic Relief is run by beautiful, devoted people. If you want to look for corrupt arseholes there’s a lot of better options”.

This was all good knockabout stuff. But the panto journalism, and the withering comments from those who limit their intellectual analysis to 140 characters, failed to explain why Comic Relief got itself into this pickle – and what should be done to extricate it.

A couple of scenarios will illuminate that. Suppose Panorama had run the opposite kind of claim –that, say, Comic Relief had incompetently lost £20m over the last 10 years because of poor investments. Or suppose the scandal was that the charity had dished out all its money in a hurry and that significant amounts of the cash had been wasted or trousered by corrupt recipients.

The latter could have come about had the charity had different policies in place to allocate the money it raises. At present teams of specialists, advised by outside experts, distribute the cash in a controlled way which allows two years, until the next Red Nose Day, to allocate it all.

Some good causes are allocated money to spend over a five year period. Grants are given in instalments to ensure that last year’s dosh was properly spent before the next year’s is handed over. The committed cash could stay in the bank, earning a measly half a per cent interest, but Comic Relief invests it.  The money that makes is used to pay the charity’s running costs, allowing it to pledge every penny the public gives goes to good causes with none spent on admin.

Comic Relief is a massive organisation.  It has raised £900 million since it began. Currently it has just under £240m invested but this is not, as critics have fatuously suggested, “hoarded”: £125 million is set aside for long-term projects, £90 million will be allocated before the next Red Nose Day in 2015. That leaves £15m (6.25pc) to run the charity.

But the independent managers of the blue-chip funds in which the money is held have put together a diversified portfolio which includes £630,000 in the arms company BAE Systems. This is just 0.26 per cent of the total but, even so, it is embarrassing for a charity which in the same year spent £5.5m helping “people affected by conflict”.  It has small holdings in drinks companies too, though many aid experts find alcohol far less problematic.

Its investment in tobacco companies, however, is deeply controversial. It has £2.7m invested in an industry which heavily promotes cigarettes in the developing world. Comic Relief supports a charity called Target Tuberculosis which calculates smoking may be responsible for over 20 per cent of TB cases worldwide.  Hence the red faces behind the red noses.

The obvious solution is for Comic Relief to use ethical investments.  Charity law allows such that Sam Younger, the Charity Commission chief executive, said on Panorama – but it also demands charities invest for the best financial return. But the programme did not reveal that immediately after the interview Younger wrote to the BBC saying “judging from some of the questions asked… I think there’s possibly a slight confusion as to what charity law says about investments”.

That’s unsurprising because charity law says contradictory things. It acknowledges charities might lose public support if they invest in what will bring maximum returns. But, Younger said, it is easy for a single-issue charity, like one focused on cancer or animal welfare, to exclude undesirable investments. But it is much harder for a charity a wide range of projects like Comic Relief.

“This might sound counterintuitive,” he wrote, “but that’s the law. The wider a charity’s objects, the more difficult it is to justify an ethical investment. A charity with broad or general objects is in a different position given trustees’ duties to invest for the best return (relative to risk).”

That is not all. The evidence on ethical investments is mixed. Sometimes they perform as well, or better, than the wider market; other times not. Comic Relief also claims that such funds are too small to give the security a widely-diversified investment brings. More evidence is needed on all this and Comic Relief should make public its exploration of the issue. It has done some work on this in the past. In 1999 it shifted some of its money into ethical funds but they underperformed. It trustees felt charity law required them to shift back into more conventional funds. Comic Relief clearly understands the problem but has not been found a solution.

Part of that lies with the Charity Commissioners. They need to clarify the law and offer some calculus to allow a charity to decide how to balance the risks of a loss of cash against loss of reputation. If they cannot issue more robust guidance then it may be that the law has to change to allow charities like Comic Relief to drop high-profit but incompatible investments without worrying that they are breaking the law if they end up earning less.

Panto journalists would still find a way to boo and jeer. But the public could be happy that, when they are exhorted to do something funny for money, the funny business ended there.

Paul Vallely is Visiting Professor in Public Ethics at the University of Chester

from The Independent on Sunday

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