It is a question we hear regularly from trustees and treasurers across the UK: "We're a religious charity. How do we make sure our investments don't contradict everything we stand for?"
It is a fair question, and an urgent one. Your charity exists to serve a mission rooted in faith, justice, and care for others. The idea that the same funds could be quietly financing tobacco producers, arms manufacturers, or high-interest lenders is not just uncomfortable; it is a direct contradiction of that mission. And the consequences, both reputational and legal, can be severe.
The good news is that avoiding unethical investments is entirely achievable. With the right framework, the right fund manager, and a clear investment policy, religious charities of all sizes can invest with integrity and confidence.
At Epworth Investment Management Ltd (“Epworth”), we have been helping churches and charities invest in line with their faith values since 1996. As a wholly-owned subsidiary of the Central Finance Board of the Methodist Church, we manage around £1.3 billion in assets on behalf of faith-based and charitable organisations across the UK. This guide sets out exactly what trustees need to know.
Why This Matters More Than Many Trustees Realise
Many religious charities assume their investments are broadly acceptable because they are held in mainstream funds managed by reputable institutions. That assumption is often wrong, and the fallout when it unravels can be damaging.
The most instructive example remains Comic Relief. A BBC Panorama investigation revealed that up to 15 per cent of its investment portfolio, potentially as much as £23 million, was held in companies producing arms, alcohol, and tobacco: precisely the industries it had funded campaigns to fight against. The reputational damage was immediate and significant.
Comic Relief's initial defence, that ethical screening was incompatible with achieving adequate financial returns, was swiftly contradicted by the evidence. Ethical funds have consistently demonstrated they can perform competitively. The real issue was that no one had looked closely enough at what the portfolio actually contained.
For a religious charity, the stakes are even higher. Your donors, congregation members, and beneficiaries trust that your organisation's conduct is consistent with its values in every area, including finance.
The Legal Position Is Clearer Than You Might Think
There is a persistent misconception among charity trustees that their fiduciary duty requires them to prioritise financial returns above all else. This is not the law.
The landmark Butler-Sloss ruling in 2022 confirmed that charity trustees can legitimately prioritise ethical considerations in their investment decisions, even where this might mean accepting a somewhat lower financial return, provided the decision is consistent with the charity's purposes and is in its best interests.
The Charity Commission's CC14 guidance on responsible investment is equally clear: trustees have a wide discretion to adopt an ethical or responsible investment approach. You are not only permitted to screen out harmful sectors; in many cases, doing so is the right thing to do for your charity's long-term health.
Key point for trustees: Ethical investment is not in conflict with your legal duties. In most cases, for a religious charity, it is an expression of them.
What Does an 'Unethical Investment' Actually Look Like?
The term "unethical investment" can feel abstract until you examine a portfolio in detail. For religious charities, the concern is not just about obvious harms. It extends to companies whose conduct, supply chains, or business models conflict with Christian values of human dignity, justice, and care for creation.
At Epworth, our ethical screening process applies hard exclusions across a range of sectors and activities. These are not arbitrary choices; they are the product of decades of theological reflection, client consultation, and engagement with the Church Investors Group and other faith-based investor networks.
Sectors Typically Excluded from Faith-Aligned Portfolios
| Category | What We Screen Out |
| Weapons | Manufacturers of indiscriminate weapons systems; companies with material involvement in cluster munitions or nuclear warheads |
| Fossil fuels | Companies extracting or refining coal, oil, and gas; those materially supplying the fossil fuel industry |
| Tobacco | Producers and wholesalers above a 0% revenue threshold |
| Gambling | Operators and platform providers |
| Adult entertainment | Producers and distributors |
| High-interest lending | Payday lenders and predatory consumer credit providers |
| Human rights violations | Companies with serious, documented breaches of UN Global Compact principles or ILO labour standards |
| Oppressive regimes | Sovereign bonds issued by governments with severe human rights records |
Approximately 13% of the UK market by value is excluded through our in-house screening process. That figure matters because it illustrates the scale of the problem for religious charities invested in unscreened mainstream funds: a meaningful portion of a standard portfolio is likely to contain holdings that conflict with Christian values.
It is also worth noting that unethical exposure is not always obvious. A company might manufacture entirely acceptable consumer goods and still use forced labour in its supply chain, pollute waterways in developing countries, or systematically avoid paying corporation tax. Conduct-based exclusions, not just sector-based ones, are essential to a genuinely robust ethical framework.
The Three-Layer Approach to Ethical Investment
Avoiding unethical investments is necessary, but it is not sufficient. A genuinely faith-aligned investment strategy requires three interconnected layers, each of which builds on the last.
Layer 1: Negative Screening (What You Exclude)
Negative screening is the foundation. It involves systematically excluding companies and sectors that conflict with your charity's values, using published, revenue-based thresholds to ensure consistency and transparency.
At Epworth, we publish our thresholds openly. For the most harmful activities, such as tobacco production and weapons manufacturing, the threshold is 0%: no revenue from these sources is acceptable. For others, such as alcohol wholesale or certain forms of animal testing conducted under regulatory frameworks, a limited revenue threshold may apply. Our ethical investment policy sets this out in full.
This level of transparency is important. It allows trustees to scrutinise and understand exactly what their funds do and do not contain, rather than relying on vague assurances.
Layer 2: Positive Screening (What You Actively Seek)
A portfolio that merely avoids harm is not the same as one that actively reflects Christian values. Positive screening means seeking out companies that demonstrate genuine commitment to:
- Strong climate action, including science-based emissions targets
- Ethical supply chain practices and fair labour standards
- Transparent governance and accountability
- Commitment to gender equality and worker rights
- Community impact and social value creation
This approach reflects the Christian call to stewardship: not simply refraining from wrongdoing, but actively pursuing what is good. As we explore in our piece on the biblical foundations for ethical investment, this distinction matters theologically, not just practically.
Layer 3: Active Shareholder Engagement (How You Use Your Voice)
The third layer is perhaps the most distinctive aspect of faith-aligned investing, and the one most often overlooked by charities using standard ESG funds.
As a shareholder, your charity has a voice. Epworth exercises that voice on behalf of our clients by:
- Voting at company AGMs in line with Christian principles
- Engaging directly with company leadership on issues including climate change, executive pay, human rights, and tax transparency
- Joining investor coalitions to amplify pressure for systemic change
- Pursuing divestment as a final measure where engagement has failed
This is not passive investing dressed up in ethical language. It is active stewardship, rooted in the conviction that investors have both the right and the responsibility to hold companies to account.
Why Generic ESG Funds Are Not Enough for Religious Charities
The growth of ESG (Environmental, Social and Governance) investing has been significant, and it has undoubtedly raised standards across the investment industry. However, trustees of religious charities should not assume that an ESG label is sufficient for their purposes.
ESG is not the same as faith-aligned investment. The distinction matters enormously in practice.
A standard ESG fund is designed to meet a broad set of environmental and social criteria that appeal to a wide range of investors. It may well hold tobacco companies if their ESG score is high enough in other categories. It may include defence contractors, gambling operators, or fossil fuel producers if those companies score well on governance metrics. ESG is a framework for managing risk; it is not a theological framework for honouring Christian values.
Faith-aligned investment starts from a different place entirely. The question is not "does this company manage its ESG risks adequately?" but "is this company's existence and conduct consistent with Christian teaching on human dignity, justice, and care for creation?"
That is why Epworth's screening is described, accurately, as theologically informed rather than simply ESG-compliant. Our seven Christian ethical pillars provide the moral and theological grounding for every investment decision we make. Trustees looking to understand the difference in depth should read our guide to what ethical investment actually means.
There is also the question of greenwashing. With the explosion of "ethical" and "sustainable" fund labels in recent years, the risk of a charity inadvertently choosing a fund that does not deliver on its stated principles is real. Our guide on avoiding greenwashing sets out the specific questions trustees should ask before committing to any fund.
Practical Steps for Trustees: Building an Ethical Investment Policy
Understanding the principles is one thing; putting them into practice is another. Here is a practical framework for trustees who want to ensure their charity's investments are genuinely aligned with its faith values.
Step 1: Review Your Governing Document
Your charity's governing document may already contain provisions about how funds must or may be invested. Check whether it specifies any restrictions on sectors or activities. If it does not, you still have the discretion under Charity Commission CC14 guidance to adopt a responsible investment approach.
Step 2: Develop a Written Investment Policy Statement
Every religious charity with meaningful investment assets should have a written Investment Policy Statement (IPS). This document should set out:
- The ethical principles underpinning your investment decisions
- The sectors and activities you will not invest in (negative screens)
- Any positive screening criteria you wish to apply
- Your approach to shareholder engagement and voting
- How you will monitor compliance and review the policy
Our guide on what to include in your ethical investment policy provides a detailed template for charities at every stage of this process.
Step 3: Audit Your Existing Investments
If your charity already holds investments, conduct a thorough audit against your newly defined ethical criteria. This may reveal holdings that need to be addressed, either through engagement with your current fund manager or by switching to a specialist ethical fund.
Step 4: Choose the Right Fund or Manager
This is where specialist expertise matters. A generalist fund manager, however reputable, is unlikely to apply the depth of theological and ethical scrutiny that a religious charity requires. The questions to ask any prospective manager include:
- What is your published exclusion list, and what revenue thresholds apply?
- How do you handle conduct-based exclusions, not just sector-based ones?
- How do you vote at AGMs, and can you provide your voting record?
- How do you approach engagement with companies on ethical issues?
- Can you demonstrate that your ethical process is integrated into investment decisions, not bolted on afterwards?
Our guide to questions every charity should ask their investment manager covers these and more.
Step 5: Review Regularly
An ethical investment policy is not a one-off exercise. The investment landscape changes, companies evolve, and new ethical challenges emerge. Regular review, at least annually, is essential to ensure your portfolio continues to reflect your values.
How Epworth Supports Religious Charities
Epworth exists specifically to serve the needs of churches and charities that want to invest with integrity. Our range of Charity Authorised Investment Funds (CAIFs) provides ethically screened access to UK equities, global equities, bonds, and a diversified multi-asset portfolio, all underpinned by the same rigorous Christian ethical framework.
Our Fund Options at a Glance
- Epworth Multi-Asset Fund: A diversified, all-in-one fund for charities seeking balanced growth and income, with full ethical screening. Accessible from £1,000. Notably, 50% of the annual management fee is donated directly to Christian Aid.
- Epworth UK Equity Fund: Seeks to outperform the FTSE All Share Index through ethically screened UK equities. At least 70% invested in UK-listed companies not excluded by Christian ethical screening.
- Epworth Global Equity Fund: Provides exposure to global markets through an ethically screened portfolio of international equities.
- Epworth Climate Stewardship Fund: For charities wishing to go further on climate, this fund excludes fossil fuel extractors and emphasises companies aligned with a below-2-degrees pathway.
- Discretionary Service: For larger charities with more complex needs, our discretionary portfolio service builds bespoke, fully ethically screened portfolios tailored to your specific values and financial objectives.
What distinguishes Epworth from a generic investment manager is that ethics and investment are not separated. Every member of our investment team is responsible for both the financial and ethical assessment of holdings. There is no separate "ethics committee" that hands down a list of permitted stocks. The ethical judgement is integral to the investment process itself.
We also work with Christian charities and Catholic organisations with different theological traditions, applying frameworks consistent with Catholic Social Teaching, including the principles set out in Mensuram Bonam, for those whose faith calls them to that approach.
The Bottom Line for Trustees
Avoiding unethical investments is not a luxury for religious charities. It is a core expression of who you are and what you exist to do. The legal framework supports it. The financial evidence shows it is achievable without sacrificing returns. And the reputational risk of failing to do it, as the Comic Relief case demonstrated, can be severe and swift.
The question is not whether your charity can afford to invest ethically. The question is whether it can afford not to.
A faith-aligned investment strategy requires three things:
- A clear, written ethical investment policy grounded in your values
- Rigorous, theologically informed screening applied consistently across your portfolio
- An investment manager who treats ethics as integral to the investment process, not as an afterthought
If you are unsure whether your current investments reflect your charity's values, or if you are starting from scratch and want to get this right from the outset, we would welcome the opportunity to help.
Explore our guide to developing a mission-aligned investment strategy, or get in touch with our team to discuss your charity's specific needs. Funds are accessible from £1,000, and our team has been navigating these questions alongside churches and charities for nearly three decades.
Investing faithfully is not complicated. But it does require choosing the right partner.
Epworth Investment Management Limited (“Epworth”) is authorised and regulated by the Financial Conduct Authority (FCA Registered Number 175451). It is incorporated in England and Wales (Registered Number 3052894), with a registered office at Methodist Church House, 25 Tavistock Place, London WC1H 9SF and is wholly owned by the Central Finance Board of the Methodist Church. Epworth-managed funds are designed for long term investors. The value of units in funds can fall as well as rise and past performance is not a guide to future returns. The level of income is also variable and investing in Epworth
funds will not be suitable for you if you cannot accept the possibility of capital losses or reduced income. Any estimates of future capital or income returns or details of past performance are for information purposes and are not to be relied on as a guide to future performance.