March 5, 2019 / In-depth
Should charitable donations be linked to impact funds?
By Joe McGrath, ESG Clarity
BlackRock refuses to say if it will continue with plans to pay WWF a share of its profits, after the charity’s alleged involvement in arming militias
When BlackRock announced plans to make regular, annual payments to the World Wildlife Fund, it surely did not anticipate that the conservation charity would face allegations of arming militias, funding murders and threatening violence against poachers.
But six weeks after announcing the proposed launch of the BlackRock Liquid Environmentally Aware Fund, which plans to donate some profits to WWF, that is exactly what has happened.
In January, BlackRock announced plans to launch its environmentally conscious fund. At the time, it said: “BlackRock has also entered into an agreement with World Wildlife Fund. As part of this agreement, BlackRock will make an annual payment to help further the global conservation efforts of WWF.”
But six weeks after the statement, news website Buzzfeed published findings of a year-long investigation, which alleged that WWF has played a role in funding paramilitary activities, violence and even murder, spanning six countries.
WWF responded by launching an independent review into the claims made in the Buzzfeed article, adding that “respect for human rights is at the core of our mission”. In light of the allegations, ESG Clarity asked BlackRock whether it would be reviewing its plans to donate to WWF in the future. BlackRock declined to comment.
Asset managers launching funds which donate a regular amount to charity, are becoming more popular.
With investors increasingly keen to see their money ‘doing good’ fund managers have recognised the benefits of promoting their charitable giving to get punters through the door.
Naturally, corporate charitable donations are a good thing. Few would dispute that. The link between business and the third sector is recognised by governments the world over, with many offering tax breaks to encourage corporations to donate as much as possible.
More recently, however, fund firms have started to launch impact funds which give a lump sum to charities as a proportion of the profit that they make.
Amundi’s multi-thematic impact funds, for instance, offer an option where a sum, relating to the profit generated, is paid to a charity, or a humanitarian organisation. Aurum Fund Management, meanwhile, pays the advisory fees generated by its “impact investment solution” to conservation charities.
However, the WWF case underscores the importance of asset managers conducting due diligence into the charities to which they donate, and raises the question as to how much scrutiny asset managers should dedicate to charities, prior to entering into profit-sharing partnerships.
Plum Lomax, the former head of European Equity Strategy at Merrill Lynch, now works for New Philanthropy Capital, an organisation which helps companies scrutinise the charities to which they will be making donations. Their previous clients include UBS, Deutsche Bank and JP Morgan.
In an interview with ESG Clarity, Lomax said asset managers considering corporate donations need to clearly understand the impact a charity is having by looking closely at its operations and spending some time with the organisation.
She advises fund groups to give close scrutiny to leadership, governance, finance, operations and whether the charity has a risk register or safeguarding process. The latter point, she says, is key.
“You need to understand the charity’s approach to safeguarding against incidents and how it has dealt with incidents in the past,” she explains. “It is probably not going to be the same amount of the due diligence as they do on companies they are going to be investing in, but it is a similar process.”
Echoes of the past
The issues being faced by WWF has echoes of the Oxfam scandal last year, when The Times published a damning report alleging that the charity’s staff had paid, and abused, sex workers. Lomax said that large organisations are always going to be vulnerable to issues, but donating firms need to understand how charities manage these issues.
“It is about how the organisation deals with the issues that occur,” she added. “We advise our clients to make multi-year funding commitments, because that is important for charities, but also because each year’s funding should be subject to the monitoring of the organisation.”