Seven steps to successful divestment

There are currently different legal views on charity investments based on non-financial considerations.  The guidance is also likely to develop over time, so trustees should consider a range of guidance before making decisions.

It is a legal requirement for you to take professional advice unless you have a good reason not to. For example, one of your trustees has significant investment expertise.

Read our guidance on legal advice and assistance

Please note this guide only outlines the divestment process for organisations with charity status. If your voluntary organisation has a different legal structure, you maybe have fewer or different considerations in order to divest.

Read our guidance pages on different legal structures

You will first need to review your existing investment portfolio to make an informed decision about divestment.

Find out where and how your investments are held. Do you have an investment manager, or does an officeholder in your organisation (such as a finance officer) manage your investments?

Engage the relevant officeholder to find out if you have current investments in fossil fuels.

Your board will need to discuss your organisation’s approach to investment and divestment.  Investing and divesting is risky and complex.

As well as taking professional advice, you should follow the Charity Commission’s principles of trustee decision-making guidance.

The board should make sure they have all the relevant information available to them to allow for a meaningful discussion. This could include the following:

• The annual earnings from investments in fossil fuels in terms of dividends (a share of a business' profits which is paid out to eligible shareholders) or other returns received.
• The investment gains (both realised and unrealised) on investments in fossil fuels. Realised gain is the amount the investor profits when the investment is sold. An unrealised gain is when the value of an investment increases, but the investor does not sell.
• Professional advice on the impact of divestment – this could be from your investment manager.
• Options for reinvestment that will have similar or greater returns for the organisation.
• Feedback from supporters such as partners and donors if it has been received.
• The impact of climate change on the organisation's finances but also the services and support that it can deliver.
• An analysis of risks to the organisation that investing in fossil fuels causes. This could be through the normal risk assessment process the board should follow on a regular basis.
• Other options to replace any losses that may result from the organisation divesting from fossil fuels.

The board should discuss all this information and weigh up the balance of the financial impact and the risk of investment or divestment before reaching a decision.  This discussion is likely to include the following:

• The amounts of money involved as a total, as a proportion of overall income, and set against the money held in reserve.
• The impact of losing this money on the charity’s ability to deliver its purpose.
• How any potential negative financial impact can be reduced and/or recovered.
• The reputational harm of divesting or investing and its impact on fundraising.
• Why it is in the best interests of the charity and its beneficiaries (the communities you support) now and in the future to divest or invest.
• When the organisation should put into practice any decision to divest.  For instance, the board could decide to divest once the organisation has come up with the funds to replace the income that would be lost.

The board discussion and decision-making should be minuted fully so that it is clear how and why any decision is reached.

Inclusion and exclusion criteria are used to decide whether certain businesses meet the desired level of standards for your investments.

As a board you should agree what these standards are based on your charitable purpose and financial considerations.

Establish clear exclusion and inclusion criteria based on your board’s agreed approach on investment and divestment.

The wording can be simple. For example, ‘we will avoid investment in businesses that extract, produce, transport, refine and market fossil fuels’.

Depending on your charitable purposes, you may also want to include social investment in areas connected to those purposes, such as:

• community energy
• affordable housing
• animal welfare.

Learn more about social investment

Update your investment policy to reflect the board’s agreed approach on investment and divestment and any new inclusion and exclusion criteria.

If you don’t have an existing investment policy, read our guidance on how to write an investment policy.

Your risk register is your framework for identifying, assessing and recording the risks your organisation faces.

You could consider adding climate-related financial risks to your risk register. The Climate Financial Risk Forum identifies two primary risk factors:

• Physical risk. For example, a higher frequency or severity of weather-related events which can damage assets and disrupt economies.
• Transition risk. For example, policy and market changes that can lead to increased legal action against fossil fuel businesses.

Learn more about these risks by visiting the Climate Financial Risk Forum website.

How you identify and evaluate your charity’s risk will depend on the size and nature of its operations.

Read our template risk register for charities to learn more.

Once your board has completed these steps and come to a decision and you have updated your investment policy to show this, you can begin the process of divestment.

If you use an investment manager, share your updated investment policy with them and let them know you would like to divest. Managers should work to meet your policy. If you feel your current manager is either unsuited or unable to follow your policy, you can change investment manager.

This would likely involve a tender process (the process where you would invite investment managers to apply to manage your investments) so your organisation can compare options.

It may be worth considering seeking some pro bono (free or low cost) support for this exercise if you don’t have investment expertise on your board.

Charities work at the heart of our communities and can act as influencers of change.

Maximise the impact of your decision not to invest in fossil fuels by informing your donors, supporters, and the wider public.

Clearly explain why your board reached the decision and how it is in the best interest of your purpose and charity. You can do this through:

• your website
• email
• social media channels
• a newsletter
• a press release.

Use our template press release, example email copy, newsletter copy and example tweets for inspiration in our communications pack.