What lessons can be learnt from the Church of England/Wonga episode? Premier's John Reeve outlines the moral of the story for the charity sector.

The recent "embarrassment" (their word not mine) of the Church of England over the discovery that they had some investments in the payday loan company Wonga is a timely reminder to the charity sector of the need to take a global view of their investments. Even the smallest charities are likely to have both charitable reserves and pension fund investments to consider.

Whilst the investments of the pension fund are a matter for the pension trustees rather than the charity, the charity (as sponsoring employer) should be consulted and should take a "holistic view" of the investments across the organisation. This means not only considering the ethical nature of the investments but also looking at the possible concentration of risk.

Investment risks take many forms. The Church of England has suffered from the reputational risk that inappropriate investments might cause, but the risks of a capital loss, falling income and a failure of asset levels to keep up with liabilities are even more important.

Recently we have seen a worrying number of stories from the charitable and not-for-profit sector relating to issues in their pension arrangements. This comes at a time when income from all sources is falling. Where the charity has significant reserves and where it relies (at least in part) on the income from those reserves to finance its activities they need to protect themselves from an over concentration of investment risk.

In our experience it is unusual for charities to take this global view of their investments. The charity's 'investment sub committee' or similar may be asked for a view on the appropriateness of certain pension fund investments and it is now common for pension fund trustees to look at the risk profile of their plan. However, we are not aware of cases where charities have looked across the business as a whole to consider the risks (ethically, in terms of capital protection and when related to their liabilities) that their investments represent to the charity.
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Bringing the well-established risk management tools of the pensions industry to bear on the charity sector would help understanding and assist charities in reducing their risks in the future and it would be interesting to see whether others have experience of this global approach having been taken.

Written by John Reeve, head of consulting services, Premier