The BBC has been struggling with a virility test over a probe by Panorama<\/i> into the corporation\u2019s in-house charity Comic Relief.\u00a0 The programme\u2019s reporters have accused it of failing to spend some of the money it raises from the public and investing it unethically in arms, tobacco and alcohol companies.<\/p>\n
BBC bosses did not want to appear defensive over the long-running investigation which is finally due to broadcast this evening. But a greater danger looms. It is that the programme will feed a woefully unsophisticated view of how the modern world of investment works.<\/p>\n
Not all the cash that charities raise is spent at once, for good reasons. Projects to bring change can require five-year programmes. \u00a0Cash is handed over annually, once it is clear last year\u2019s money was well spent. To keep the balance in the bank would earn a meagre half per cent interest. So charities invest the cash in equities, not in risky single companies but in blue-chip managed funds.<\/p>\n
Charity Commission guidelines insist on this. Legal, and legal precedents like Cowan v Scargill (1985), insist charities have a duty to obtain the best financial return in relation to both risks and yields.<\/p>\n
Charities with a single-focus are allowed to avoid some investments; animal charities, for example, can eschew firms which do animal research. But charities with broad briefs like \u201cthe relief of poverty\u201d are not allowed to avoid everything considered bad for poor people in some way. That would give them too narrow an investment base which could make their portfolio more risky.<\/p>\n
There are ethical investment funds. Some have windows of good performance. But overall they are slightly more risky, cost more to manage and produce lower returns.\u00a0 Ethical funds substantially under-perform the global equity average. To secure \u00a3100 today you\u2019d need, seven years ago, to have invested \u00a380 in ethical funds compared to \u00a370 in broader global equity funds.\u00a0 There are sound moral arguments for individuals to choose them but the law does not allow charities to do that. Had Comic Relief invested its full portfolio ethically in 2003 it would today have \u00a320m less to spend on projects to help the poor.<\/p>\n
Once you use managed funds it is difficult to isolate \u201cundesirable\u201d investments, as the Church of England found to its embarrassment when it was revealed to have money in Wonga world. Had Panorama journalists scrutinised their own BBC pension scheme they would have found its seventh biggest equity investment in British American Tobacco (\u00a337.8m). It is also in arms, with \u00a325.3m in BAE Systems, and has more than \u00a350m in alcohol.\u00a0 Sensationalist journalism might cry pot and kettle. The truth is that investing ethically in a world of complex globalised interdependency is nowhere near as easy as many suppose.<\/p>\n
Paul Vallely is Visiting Professor in Public Ethics at the University of Chester<\/i><\/p>\n
A shortened version of this was published in The Times<\/b><\/p>\n","protected":false},"excerpt":{"rendered":"
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