Telemark University College, Hallvard Eikas Plass, N-3800 Bø i Telemark,
Norway, and
La Trobe Business School, La Trobe University, Melbourne, 3086, Australia, and,
The Business School, University of Glasgow, Glasgow, G12 8QQ, UK
Purpose - The purpose of this paper is to explore whether socially responsible investment practices of charities differ between Norway and the UK and if they do, how.
Design/methodology/approach - The paper uses a cross-sectional field study design to explore the ethical investment practices of 197 of the largest charities by investments in the
UK and Norway. The paper d raws on a blend of institutional and social origins theory.
Findings -
Our results indicate that Norwegian charities had significantly more public sector funding than their UK counterparts; that charities with higher public sector funding were more likely to have an ethical policy and that many Norwegian charities with public sector funding mimic the Government Pension Fund (GPF).
Research limitations/implications (if applicable) - The paper highlights that m ore research is needed on sovereign wealth funds, their investment practices and how they affect charities and various market participants.
Practical implications (if applicable) -
The paper generates important questions about how sovereign wealth funds operate in relation to the public transparency of their investment practices.
Social implications (if applicable) - The paper generates
a number of important questions about the broader potential of sovereign wealth funds to regulate market investment practices through the use of ethical screens, engagement with comapnies and to contribute towards a
‘civil economy.’
Originality/value -
This paper responds to calls for more research on charities in different countries, how charities adopt new practices, and CSR practices in different countries. We contend that this specific comparison also sheds light on the broader debate on the role of sovereign wealth funds (SWFs) in relation to the state regulation of capital markets.
The paper will be of value to academics, policy setters and regulators.
Key Words : Charities, Sovereign Wealth Fund, Ethical Investment, Institutional Theory.
Paper Type : Research Paper
1

The voluntary sector is growing in significance as governments and communities look beyond the two-sector state/market model to deliver policy commitments. Associational democracy models that underpin the development of some of this ‘third way’ thinking also promote the development of the NGO and charity sectors as a potentially effective way of stimulating civic participation, providing public services and regulating markets (Ayres and
Braithwaite 1992; McPhail 2010). Diamond (2011) also appears to make this link when he calls for the promotion of a ‘civil economy’.
Charities therefore represent a new force in society. It is estimated that UK charities in 2010 had £90.2 billion in assets and an income of £36.7 billion (NCVO, 2012). Foundations in
Norway had assets worth 124 billion NOK or £13.7 billion in 2010 (Stiftelsestilsynet)
1
, one seventh of the UK figure.
2
Whereas companies have a profit motive, charities have a charitable motive, which is often ethically driven (Schaefer, 2004; Gray et al., 2006).
3
Many charities are, however, concerned about financial matters as investments provide an important source of income, making them less dependent on (volatile) individual giving, government grants or any single source of funding. This can result in tension between the financial investment motive (the maximisation of investment returns to maximise the financial resources available for charitable activities) and the ethical investment motive
(potentially forsaking an element of investment return to ensure investment activities are not in conflict with a charity’s mission and values).
This paper responds to calls for more research on charities in different countries (Salamon and Anheier, 1998; Jegers, 2011), how charities adopt new practices (Røvik , 2007, p.40) and
CSR practices in different countries (Maignan and Ralston, 2002). Socially responsible
1 Personal communication with Stiftelsestilsynet (Norwegian charity regulator) 2.5.2012.
2 Foundations in Norway roughly correspond to Charitable Trusts in the UK, they tend to be grantmaking charities. The size of Norwegian assets is smaller in abslolute terms, but not in relative terms when we consider that the UK has 12 times the population of Norway.
3 Charities can be driven by religious, social, ecological or other purposes. See Appendix 1 for a definition of a charity.
2

behaviour varies across countries, 4 but the reasons for the variations are not well understood
(Adams et al.
, 1998; Maignan and Ralston, 2002). For example, in a study on the differences in ethical investment between Denmark and the UK, Vallentin (2000) concluded that we are talking ‘about two quite different stories’.
The objective of this paper is to contribute to the understanding of why charity ethical investment differs across national contexts through an analysis of ethical investment practices of leading charities in Norway and the UK. We draw on a blend of institutional and social origins theory to develop three hypotheses that could explain some of the differences between the investment practices of charities in both countries.
Institutional theory has emerged as one of the dominant conceptual approaches used to analyse and understand the evolution of and dynamics between organisations in society
(Lousbury 2008; Davis and Marquis, 2005; Perrow, 1979; Robson et al., 2007; Suddaby et al., 2007; Cooper and Robson, 2006; Greenwood et al., 2002; Cooper et al.
, 1998). We contend that this particular study is of interest because the institutional contexts within which charities operate in the UK and Norway are quite different in two main regards.
Firstly, the underlying institutional field is different. In Norway a key organisation within the field is the Government Pension Fund: Global (hereafter GPF). The GPF is one of the largest investment funds in Europe and the third largest Sovereign Wealth Fund (hereafter
SWF) 5 in the world (Truman, 2007). The value of this fund at end 2010 was 3077 billion
NOK (over £310 billion) (St.Meld. 15, 2010/11). The fund has an active ethical investment approach and publishes its ethical policy and rationale for exclusions on the internet.
6 In the
UK no such dominant actor exists and we might therefore expect differences within the charity investment field
7
in the two countries. Secondly, the , shared system of meaning that
4 For example, differences between countries in disclosure of environmental and social information (Adams et al., 1998). Differences in adoption of environmental management systems were documented by Johnstone et al.
, (2004) and Kreander (2001) found differences in SRI practices between countries.
5 A Sovereign Wealth Fund (SWF) is a state-owned investment fund composed of financial assets such as stocks, bonds, real estate, or other financial instruments funded by foreign exchange assets.
(www.swfinstitute.org).
6 See Appendix 2 for the GPF ethical investment policy. Since all the exclusions, the policy and rationale behind exclusions are made public it is straightforward to imitate this policy. The ethical criteria of this fund have backing from the Norwegian parliament and broad public support in Norway.
7 We use the term field to refer to ’sets of organisations that, in the aggregate, constitute an area of institutional life; key suppliers, resource and product consumers, regulatory agencies and other organisations that produce similar services or products.’DiMaggio and Powell (1983: 148-149).
3

operates within the field (Scott 1994), or the field logic 8 , may also be different. Salamon and Anheier (1998), for example, contend that the complexity of cross-national comparisons of the non-profit sector can only be grasped by recognising that it is embedded within within different social, political, and economic realities within different countries. The field within the UK may be seen to be underpinned by a ‘liberal’ tradition while Norway has a ‘social democratic tradition’ (Salamon and Anheier, 1998). Tranvik and Selle (2007) describe the
Scandinavian political orientation in general, and Norway’s in particular, as one of
‘associational democracy,’ characterised by a high level of integration between the State and civil society organisations
9
. In Norway 58% of the population participated in voluntary work and the expenses of the voluntary sector were estimated to be 61 billion NOK in 2004
(St.Meld.nr.39, 2006/7). Not surprisingly, this size, together with publicised scandals, has led to concerns about the accountability of charities.
10
By contrast, however, Diamond
(2011) contends that the UK’s experience was quite different. While New Labour significantly increased the delivery of public services via the public sector they were,
‘Notoriously reluctant to empower actors beyond the core of the central government machine. The market state was hard-wired into the DNA of New Labour itself.’ (p.2)
While the differences between charity investment practices between Norway and the UK are useful for understanding national differences in socially responsible investment in general, we contend that this specific comparison also sheds light on the broader debate concerning the role of sovereign wealth funds (SWFs) in relation to the state regulation of capital markets. Diamond (2011, p.1) for example comments, ‘most debate is still framed around the idea of an intractable dichotomy between market and state ... In the context of the 2008-9 global financial crisis, the left across the industrialised world sensed an opportunity to unleash the power of the state in order to contain neo-liberal market forces: in particular, taming and regulating market institutions, from banks to sovereign wealth funds, in the public interest. Free-market Conservatives, on the other hand, have sought to use the coming period of fiscal retrenchment to shrink the state, making the state in Britain qualitatively smaller in scope and scale .’ We are unaware of any study which has explored the regulatory
8 We use the term logic to refer to’the broader cultural beliefs and rules that structure cognition and guide decision-making in a field.’ Lounsbury (2008).
9 Although they contend that this political orientation has been undermind recently (Tranvik and Selle, 2007).
10 In Norway leaders of LHL were accused of economic irregularities and the managing director had to resign
(Moe and Stenseng, 2007). Bibelvisjon raised 10 million NOK (£1m) in 2003 but only 1.3 (£0.11) went to the end cause (Vårt Land, 18.11. 2008). In the UK Breast Cancer Research (Scotland) raised £13.2 million, but only £1.5 million was passed on to charitable causes (Buxton, 2005).
4

function of a SWF as a key institution in relation to the ethical investment practices of charitable organsations and which questions the simplicity of the dichotomous relationship between state and markets to which Diamond (2011) refers.
The specific aims of the study are to:
1.
Provide evidence on the existence and nature of the ethical investment policies of large charities in Norway and the UK.
2.
Develop and test hypotheses, based on institutional theory and social origins theory, that may help to understand the differences between the investment practices of charities in both countries.
3.
Explore the implications for policy development, specifically in relation to the role of sovereign wealth funds (SWF’s) in relation to the state regulation of capital markets.
The remainder of the paper is organised as follows. The next section reviews selected literature on charity ethical investment. In section three we draw on institutional and social origins theories to develop hypotheses. The research methods employed in the study are outlined in section four. The results are presented in section five and section six offers conclusions.
2.1 Context and country differences
There are interesting historical differences between Norway and the UK. For example, the workers movement in Norway has been relatively strong and politically powerful compared to the landed elites, with the reverse being the case in the UK. Social services were provided by charities in the UK while the state has been more heavily involved in Norway. This reflects the ‘liberal’ Anglo Saxon tradition vs. a Scandinavian ‘social democratic tradition’
(Salamon and Anheier, 1998).
Ethical investment is also a more recent phenomenon in Norway. The first Norwegian ethical fund for the public was launched in 1989 and the first charity ethical investment policy of which we are aware was launched in 1991 (Bengtsson, 2008a). By this time, the
5

concept and practice of ethical investment was already established in Canada, France,
Sweden, UK and the US, making it easier to establish in Norway also (Kreander, 2001;
Sparkes, 2002). Key actors such as the GPF, have had an important role as a driver of socially responsible investment (SRI) in Norway (Bengtsson, 2008b).
Norway is a small country whilst the UK is a large country.
11
Norway has one large dominant actor in ethical investment, while the UK has many smaller actors. In Norway
91% were members of a Church in 2010, while Christian Churches in the UK comprised
60% of the population (Mandryk, 2010).
12
Further political and religious differences are outlined in section 3.2. These differences make it interesting to contrast the two countries.
2.2 Regulation of charity ethical investment
Historically, UK regulation required that ethical investment screens had to be linked to the aims of the charity (Meakin, 2005),
13
while Norwegian charities have not had this constraint.
Norwegian charities have been relatively unregulated in terms of investment policy. Risk must be considered and there has to be a possibility to earn a satisfactory return
(Stiftelseloven 1 para 18), but Norwegian charities have no other limitations to ethical investment. For most charities in Norway investments have been a purely financial matter, although some have adopted an ethical investment policy.
The Charity Commission for England and Wales (2003) provides the following definition of an ethical investment policy:
‘An ethical investment policy may involve looking for companies which demonstrate best practice in areas like environmental protection, employment and human rights, or for companies whose businesses contribute directly to a cleaner environment or healthier society. Or it may involve negative screening, to avoid investments in a particular business or sector. Many ethical investors and ethical investment funds adopt a combination of positive and negative criteria.’
We adopt the above definition, but note that, more recently, the Commission (2011) defines ethical investment as ‘ investing in a way that reflects a charity’s values and ethos and does
11 The UK is much larger in terms of population (62 compared to 4.9 million in Norway) and size of the voluntary sector (on charity assets per capita the countries are similar, £1465 in UK and 1586 in Norway).
12 Prior research indicates that religion may be a factor affecting charity propensity of ethical investment
(Kreander et al., 2009, Schaefer, 2004).
13 Nowadays UK charities are permitted to have a more extensive ethical policy, but the ‘old’ mentality is still common (Kreander et al., 2006, 2009).
6

not run counter to the charity’s aims .’ The new definition focuses more on values, while it allows for ethical screening and engagement with companies on ethical and environmental issues. This definition postdates our research, therefore we use the 2003 definition.
The Commission mentions the use of positive or negative ethical criteria or ‘screens’ (2011), and notes that an ethical investment policy may also include stakeholder activism. Such activism means that charities, as owners of shares in a company, may use their voting rights in relation to shareholder resolutions (in particular those relating to ethical issues) at company annual general meetings (i.e. vote their shares) (Kreander, 2001; Green, 2003).
Charities can also engage with companies in the form of dialogue. This dialogue can take place either directly between the charity managers and the investee company, or indirectly through the charity’s fund managers. Screening (positive and negative) and stakeholder activism (which may include share voting) are, therefore, the two main forms of ethical investment which subsequently have a regulatory impact on the market.
The regulatory environment within which UK charities operate has witnessed some significant developments. Since at least 1987, the Commission has acknowledged that charities should not invest in companies whose activities are contrary to the purpose of the charity (Sparkes, 1995). Another accepted reason for charity ethical investment in English law is to avoid ‘hampering the work of the charity’. This is based on the ruling in the Bishop of Oxford case (Harries (Bishop of Oxford) v Church Commissioners [1992 1wlr] 1241 in
Luxton, 1992). This can happen if the charity alienates beneficiaries and donors by investing unethically.
Guidance on charity investment, issued in 2003 from the Charity Commission of England and Wales (CC14), gave charities greater freedom to implement an ethical investment policy
(Charity Commission, 2003). While a fiduciary duty is still given primary importance, this guidance recognises that there does not have to be a conflict between the fiduciary duty and an ethical investment policy. The new guideline (Charity Commission, 2011) further encourages flexibility in investment approach whilst still relying on the Bishop of Oxford case.
14
In the charity ethical investment area there is not much change (Mansley, 2011).
14 See Kreander et al.
(2006), Sparkes (1995) and Luxton (1992) for detailed analyses of this case in which the
Bishop of Oxford challenged the ethical investment policy of the Church Commissioners for England. In his ruling the judge clarified in which situations ethical investment is permissible for charities.
7

2.3 Charity approaches to ethical investment
Charities, despite having larger ethical investments in absolute terms than retail funds and having a far longer history of ethical investment than retail funds, have not been extensively studied in the literature.
15
In this section we first consider evidence from outside Norway and the UK (North America and continental Europe) and then discuss the UK evidence on charity ethical investment. We are not aware of any published academic evidence of charity ethical investment in Norway. The Norwegian NGO Norwatch, however, looked at seven charities with investements of which three had an ethical policy and a fourth one invested in ethical retail funds (Hagen, 2006).
Plant 2003 argues that Canadian charities could achieve closer alignment with their mission by adopting ethical investment practices. In the USA some charities vote the shares they own at company annual general meetings on ethical issues as part of the engagement (Guay,
Doh and Sinclair, 2004).
Schaefer’s (2004) investigation of the investment behaviour of German non-profit organisations is based on 110 questionnaire responses. It was found that 59% of organisations considered environmental or social criteria in their investment decisions and religious organisations used ethical criteria more frequently than other charities. Armaments was the most frequent negative screen, followed by nuclear power and alcohol/tobacco. The vast majority expected a return on SRI comparable to a non-SRI benchmark, with the remainder split between whether a higher or lower return was expected.
Valor and de la Cuesta (2007) study the demand for SRI by Spanish religious groups and charities. Based on 31 questionnaire responses, they find that only 13% have a written SRI investment policy. The main constraints on ethical investment were viewed to be the lack of information about suitable products and the lack of trust in the management of these funds; poor financial performance was not a major constraint.
15 The criteria, operations and performance of retail ethical investment funds (i.e. funds available to individual investors) have been studied extensively in the UK and elsewhere (e.g. Bengtsson, 2008a; Harte, Lewis and
Owen, 1991; Perks, Rawlinson and Ingram, 1992; Friedman and Miles, 2001; Kreander, 2001; Miles,
Hammond and Friedman, 2002; Cowton 2004; Udgaard, 2006).
8

Turning to the UK, general surveys of charity investment (ACEVO 16 , 2003; JP Morgan,
2003; 2005; 2008) have referred in places to SRI. The survey in ACEVO (2003) asked charities about the use of ethical and SRI screens and found that 22% of the 219 responding charities employed such screens. The JP Morgan (2003) survey found that 39% of 134 charities had an ethical investment policy. The more recent JP Morgan (2005 and 2008) surveys did not cover ethical investment but found that more charities were pursuing high risk assets (hedge funds) because they believed, mistakenly, that these would maximise returns.
17
Green (2003) employs interviews and a questionnaire to study charity ethical investment in the UK, finding that 40% of the 57 questionnaire respondents (all large charities) had an ethical policy. In most cases this policy was limited to ethical screening, typically avoiding sectors such as tobacco and armaments, although a few charities with more developed exclusion policies were identified. An example was Barnardos
18
, which had negative screens relating to child exploitation and pornography in addition to those above.
Kreander, Beattie and McPhail (2006) extended the work of Green in a survey which found
55% of the 88 respondents had a written ethical policy. Content analysis of 122 charity annual reports found a wide variety of screens and investment practices. Follow-up interviews revealed that in most cases neither donors nor beneficiaries were consulted about investment policy. In many cases the ethical investment policy was limited to one or two negative screens, perhaps because 28% of respondents believed an ethical policy could reduce financial returns
19
. Since investment disclosures were often limited the study concluded that there was scope for improving charity accountability and the alignment of investment policy with the aims of the charity. This work was further developed in Kreander
16 ACEVO stands for: Association of Chief Executives of Voluntary Organisations, (in the UK).
17 A Norwegian sample charity invested in many asset classes. The charity reported positive returns from all other asset classes except hedgefunds which yielded a negative return (UNIFOR, 2006). Many hedgefunds have failed altogether (see McWhinney, 2011).
18 A children’s charity.
19 UK regulations prior to CC14 in 2003 required that any ethical policy had to be linked to the aims of the charity. Other rationales for an ethical policy were if particular investment(s) could harm the work of the charity (e.g. environmental charity investing in an oil company associated with pollution) or make beneficiaries unwilling to receive help from the charity.
9

et al., (2009), which found that fundraisers 20 , large and religious charities in the UK were more likely to have an ethical investment policy.
In a recent survey of UK charity ethical investment, CFDG (2010) notes that 46% of 134 responding UK charities had an ethical investment policy. They observed a wide range of ethical screens including negative ones on genetic engineering and intensive farming and positive ones on fairtrade and microfinance. The main barriers to SRI were concerns about lower returns and trustee concern over the legality of ethical investment.
We draw primarily on neo-institutional theory
21
to frame our investigation of the different structural and institutional characteristics of the field within which charity SRI operates in the UK and Norway, and to develop three hypotheses. We synthesise institutional theory with the social origins theory advocated by Salamon and Anheier (1998), in recognition of the socio-cultural characteristics that may distinguish ethical investment practices in both countries. By doing so, we aim to provide more nuanced explanations for the reasons behind the surface patterns of organisational practice (Strang and Macy 2001; Lounsbury
2008; Fligstein 1990) and also mitigate against criticisms that institutional theory alone cannot explain NGO behaviour (Rauch, 2010).
Corporate social responsibility has been theorised from a neo-institutional perspective
(Campbell, 2007). Institutional theory has also been applied to the analysis of socially responsible investment (Bengtsson, 2008a; b) and non-governmental organizations (NGOs)
(Powell et al., 2005, Rauch, 2010). Consistent with this body of work on socially responsible investment (SRI) in both the for-profit and NGO sectors, we construe charity ethical investment as taking place within an institutional field. In relation to the charity sector, it has been suggested that ‘institutional differences’ may partially explain the different financial management practices of charities in Belgium and the USA (Jegers,
2011).
20 Fundraisers refer to charities that appeal to the public for funds, such as Oxfam, Red Cross and WWF:
21 Initial applications of institutional theory took an overly irrational and mimetic view of organisational evolution and change. Lounsbury (2008), for example, explains how some of the early research presented a simplistic two stage process of change, where early movers (motivated generally by technical reasons) were followed in a mindless, automatic fashion by other organisations anxious not to been seen to be out of line or left behind. New forms of institutional theory try to provide more nuanced explanations for the reasons behind the surface patterns of organisational change (Strang and Macy 2001; Lounsbury 2008; Fligstein 1990).
10

We draw on DiMaggio and Powell’s (1983, p. 148-149) definition of a field as a ‘set[s] of organisations that, in the aggregate, constitute an area of institutional life.’ The area within which charity ethical investment is practiced includes both a set of organisations and an associated structuring cognition which provides practices within the field with a logic . As
Lounsbury (2008, p. 350) explains,
’This kind of institutional approach to rationality has more recently become manifest in the use of the concept of logic that refers to broader cultural beliefs and rules that structure cognition and guide decision-making in a field.’
The literature to date has drawn on stakeholder theory to conceptualise NGO accountability in terms of the horizontal distance between management and stakeholders, and a second vertical dimension that captures the tension between upward accountability to funders and downward accountability to beneficiaries (Unerman and O’Dwyer 2006b; Gray, Bebbington and Collison 2006). Gray et al.
(2006; see also Jegers and Lapsley 2001; Schaefer 2004) comment that these relationships cannot be adequately explained in terms of economic expediency. They argue:
‘the relationship may not be – nor needs to be – as formal and as distant as that between a shareholder and company… Matters such as trust, emotion, conscience, social contracts, mutuality etc. all enter into the relationship`.
Building on this line of argument, we draw on Fogerty and Rogers 2005 (see also Townley
2002 and 1997; Friedland and Alford 1991) to contend that the field logics, operating within the different national contexts we study, structure practices of accountability and provides them with meaning.
Fligstein (1990) explains that neo -institutional theory views rationality for change within fields as institutionally contingent and Suddaby et al . (2007: p.334) hint towards the cultural contingency of field logics, and associated forms of accountability relationships, when they state,
Institutional accounts are increasingly used to understand the dynamics of globalisation (Guillen,
2001; Meyer, Boli, Thomas, and Ramirez, 1997). While some of these approaches have focused on the processes by which dominant cultural templates are diffused globally (Boli and Thomas,
1999; Meyer et al., 1997), others focus on the processes by which dominant templates are translated or adapted to local contexts (Czarniawska and Joerges, 1996; Djelic and Sahlin-
Andersson, 2006; Djelic and Quack, 2003).
Indeed there have been calls for more research on how national institutional differences affect the commitment to CSR (Maignan and Ralston, 2002).
11

We therefore explore the extent to which the particular institutional dynamics of charity ethical investment in Norway and the UK help explain SRI practices within each country.
However, we also investigate the extent to which the different ‘cultural templates’ and broader field logics enrich our understanding of charity ethical investment practices in both countries.
3.1 The institutional field in Norway and the UK
According to DiMaggio and Powell (1983), one can often find a significant degree of similarity in patterns of organisational practice within an organisational field (although see
Oliver 1991).
22
The reason for this homogeneity is isomorphic change, or crudely that organisations imitate other organisations. In the case of Norway, Sivesind and Selle (2010) have noted how popular movements in Norway often imitated the organisation of political parties and highlighted a political culture that emphasised ‘one norm for all’ (Sivesind and
Selle, 2010).
DiMaggio and Powell (1983, p.155) present a number of predictions. Of particular relevance to this study is their hypothesis that: ‘ the greater extent to which the organizations in a field transact with agencies of the state, the greater the extent of isomorphism in the field as a whole .’ The presence of the GPF in Norway may be one factor that differentiates charity ethical investment in Norway from the practices that prevail in the UK. In the case of
Norway this could mean that charities that transact more with the state are more likely to adopt the ethical investment policy of the GPF. This leads to our first set of hypotheses.
H1a: Charities which receive funding from the public sector are more likely to have an ethical policy .
H1b: Norwegian charities with a high degree of government funding are more likely to imitate the ethical investment policy of the GPF (see Appendix 2 for this policy).
22 Oliver (1991) contends that organisations will respond with a mixture of isomorphic behaviour and strategic manipulation. We are also conscious of the fact that most early forms of institutional theory overlook the organisational power and motivation to manipulate external pressure (Oliver, 1991; Dacin, Goodstein and
Scott, 2002).
12

DiMaggio and Powell (1983) further propose that greater dependence of an organisation on another organisation leads to isomorphism between the organisations in terms of behaviour
.
We postulate that charities, short of staff with investment expertise, may imitate a strong established actor within the field which has staff devoted to investment ethics, such as the
GPF. This is plausible since strong commercial SRI actors (who sell SRI to charities) such as the bank DNB and KLP imitated the GPF ethical policy (Bengtsson, 2008a).
23
By contrast, no dominant actor of this kind exists in the UK, where there are numerous ‘smaller’ pension funds.
24
We therefore expect different degrees of isomorphism within the two countries (DiMaggio and Powell, 1983). Our second hypothesis is as follows:
H2: UK charities will exhibit more variety in their ethical investment screens and factors contributing to their ethical policies compared to their Norwegian counterparts.
Less variety in Norway may also be linked to Norway being a smaller country. Peer pressure in Norway may be more important since individuals within a specific professional field often know the others (Gray et al., 2006). This may lead to greater pressure to conform in
Norway, facilitating isomorphism and leading to a more homogenous field in practice, including ethical investment policies.
In sum, these hypotheses would lead us to expect a greater degree of similarity of ethical investment policies in Norway than in the UK, and specifically we would expect conformity to the ethical policy of the GPF.
3.2 The field logic in Norway and the UK
However, as we note above, newer forms of institutional theory have tended to focus on the disperate way individual organisations rationalise these surface patterns and we are conscious of the potential impact of the broader cultural beliefs and rules in both contexts .
Therefore over and above the different institutional relationships within both countries we contend that the way in which broader cultural beliefs and rules structure cognition within both fields may also be sigificant. Social origins theory would therefore encourage reflection on the broader cultural institutions that may impact on the field of charity ethical
23 Preliminary examination of charity documents and websites also revealed that charities in the sample such as
Fritt Ord and UNIFOR, both among the largest charities in Norway by assets had ethical policies with many similarities to the GPF one.
24 The Local Government Scheme for England and Wales is the largest UK pension fund, valued at £ 132 billion in 2007. This is less than 50% of the Norwegian GPF .
13

investment. We therefore synthesise neo-institutional perspectives with Salamon and
Anheier’s social origins theory in order to provide a richer explanation of the observed patterns of organisational practice (Strang and Macy 2001; Lounsbury 2008; Fligstein
1990).
Salamon and Anheier (1998, p.241) argue for a ‘social origins theory’ that views the nonprofit sector ‘as an integral part of a social system whose role and scale are a by-product of a complex set of historical forces’. These ‘forces’ include cultural, economic, political and religious influences (Anheier and Salamon, 2006). Others have also noted that these factors may influence CSR practices (Adams et al., 1998). In terms of social origins, Anheier and
Salamon (2006) classify Scandinavia as a social democratic region in contrast to the UK, which is more similar to the liberal model of the US (Anglo Saxon philanthropy rather than
Scandinavian social democracy see Figure 3.1 adapted from Anheier and Salamon, 2006).
25
[Table 1 about here]
Norway is a Lutheran country with a long tradition of voluntary community effort (dugnad)
(Sivesind and Selle, 2010). The workers movement and the labour party have been strong in
Norway, whilst landed elites have been relatively weak. The middle class has not been so strong historically, whilst farmers have been relatively independent (Sivesind and Selle,
2010). The level of paid employment in the voluntary sector is low in Norway, whilst per capita spending on public welfare is high (Sivesind and Selle, 2010). This reflects the social democratic model in which the voluntary sector in general can be substantial, but tends to be smaller in areas where the state is heavily involved, such as education and health.
The UK by contrast is more diverse. The official churches are Anglican and Presbyterian, but there are many significant minority groups (Catholics, Methodists and others) (Mandryk,
2010). Some researchers have argued that the use of ethical codes may be linked to a strong
‘protestant background’ (Maignan and Ralston, 2002). The scale of the voluntary sector is
25 Anheier and Salamon note that the UK has moved somewhat towards the social democratic model after the second world war, especially in health care. Examples of the Statist and Corporatist model are Japan and
Germany, respectively (Anheier and Salamon, 2006, p.107).
14

larger in the UK, especially when it comes to paid employment (Anheier and Salamon,
2006).
26
In addition to the influence on charity ethical investment of broader cultural institutions,
Salamon and Anheier’s (1998) perspective points towards a different structuring cognition in relation to the accountability logics operating within both country fields (Gray et al., 2006;
Unerman and O’Dwyer 2006a; Unerman and O’Dwyer 2006b O’Dwyer, 2008). We contend that some aspects of the social democratic orientation in Norway described above, in conjunction with the size of the population, may result in different distance between charity stakeholders and therefore different accountability relationships within the two countries
(Maignan and Ralston, 2002). As noted above, Unerman and O’Dwyer (2006b; see also
Gray et al.
2006), discuss how the horizontal distance between NGO management and stakeholders shapes the accountablity relationship.
We contend that the social democratic ideology within Norway and the constituent tradition of voluntary participation in community activities, combined with the desire to achieve consensus through dialogue, contributes towards a field logic which is different to that which influences charity ethical investment in the UK. Our third hypothesis is connected to social origins theory:
H3: Charities in Norway have a closer relationship with their donors and beneficiaries than their
UK counterparts.
The study used postal questionnaires and interviews to explore ethical investment practices.
Building on existing evidence for the UK (Kreander et al., 2006; 2009), additional field work is undertaken in Norway in this comparative study. The interviews serve as a crosssectional field study which serves to close the gaps between surveys and case studies (Lillis and Mundy, 2005). A mixed methods approach was employed to facilitate method triangulation (Jick, 1979; Patton, 2002). Prior to each interview, the Annual Report of the charity and the website were examined.
26 However, measured by volunteering and charity/NGO membership per/capita Norway comes ahead of the
UK (Anheier and Solomon, 2006; Sivesind and Selle, 2010).
15

4.1 Sample selection
The study focuses on the largest charities in the UK and Norway with investments. Three financial measures of size were used: income (perhaps the best measure of size for fundraising charities); funds (perhaps the best measure for grantmaking charities)
27
; and investments (given the focus on investment practices).
In the UK the top 120 charities based on each of these three criteria from the Top 3000
Charities 2004/05 publication (Caritas, 2004) were identified. After eliminating duplicates meeting more than one of these criteria, and twenty charities with no investments, a pool of
197 distinct charities remained. In aggreagte, these 197 charities represented investments of more than £30 billion, funds amounting to £36.5 billion and income of approximately £8.8 billion. Of these 197 charities, 117 were grant makers.
In Norway all the charities that were members of Stiftelsesforeningen in 2007 are included in the sample, 55 grantmaking charities were members. However, a study of grantmaking charities would not be comparable to the UK sample which includes both grantmakers and fundraisers (see also: Green, 2003; Kreander et al., 2006). Therefore another list called
’Frivillighet Norge’ was also used. This organisation had 161 charities as members in April
2008 (www.frivillihetnorge.no accessed May 2008). These charities are fundraisers such as
Amnesty, Blå Kors and Red Cross Norway. After adjusting for overlap between the lists and removing charities with no investments 103 charities remained in Norway.
4.2 Postal questionnaire instrument and administration procedures
A postal questionnaire was sent to the finance directors of the 197 UK charities, the first mailing taking place in November 2004. In Norway the first mailing took place in August
2008. The four-page research instrument used primarily closed-form questions and contained four main sections. Questions were primarily developed from a review of the prior literature. Section A asked about the existence and nature of the charity’s ethical investment policy. Section B covered implementation, monitoring and reporting. Section C asked for views on possible regulatory reform and ethical investment returns. Section D asked for the respondent’s name and position and willingness to be interviewed.
27 Grantmakers refer to charities that primarily give grants for charitable causes. For example the Wellcome
Trust, the Joseph Rowntree Foundation in the UK and many foundations in Norway.
16

The questionnaire was pilot tested during interviews with three charities and the content was revised accordingly. Academics also provided feedback on the pilot questionnaire. All questionnaires were accompanied by a letter which explained the background to the research and gave an assurance of confidentiality of responses. The letter was personally signed by the researchers and accompanied by short biographies of the research team and a stamped, return envelope.
28
A second mailing of the research package was sent out in January 2005 for the UK and
October 2008 for Norway. In total, 88 usable responses were received (a rate of 45%) in the
UK and 46 usable responses were received in Norway (a rate of 45%). On the assumption that late responders are similar to non-responders (Oppenheim, 1966, p.34), we tested for nonresponse bias by comparing the responses to numerical questions between the first and the second mailing using Levene’s test and a non-parametric test. The results show that there were no significant differences at the 5% level between early and late respondents. Although this test is limited in value (see Wallace and Mellor (1988) for a discussion), we conclude that non-response bias is not a serious problem in this study and the respondents represent a representative sample of the largest charities in Norway and the UK. Non-parametric tests and binary logistic regressions were used to analyse differences between the countries. The statistical package SPSS was used for all tests. We note that much of the UK data is from
2005, while much of the Norwegian data is from 2008. This could be a potential weakness, however, the GPF is important for this paper. The GPF ethical investment policy remained the same between November 2004 and end 2009 ( www.etikktådet.no
). The implementation of the GPF policy began in 2005 and in order to study its influence on charities we argue it is better with more recent data, so that isomorphism could have taken place.
29
4. 3 Interviews
The final question in the survey asked if the respondent would be willing to be interviewed to allow issues to be explored in more detail. Of those who expressed willingness, we selected twenty charities for interview, seeking to sample across a range of background charity characteristics such as sector and size. Following Eisenhardt’s (1989) advice to
28 The letter in Norway was signed by the researcher and the Dean of the Institution.
29 We also note that the percentage of large UK charities with an ethical policy seemed stable between 2005 and 2009 (Kreander et al., 2006 and CFDG, 2010).
17

include different categories/groups we also interviewed two fund managers with charity clients (one in each country). All the interviewees had several years of experience of charity investments (see Appendix 3 for details).
30 The interview sample covered a wide range of charity sectors and charities of different sizes. Interviews were semi-structured, covering 16 broad issues. The interviews typically lasted approximately one hour. 19 interviews were tape recorded and fully transcribed. Notes were taken at each interview and written up immediately after the interview. The interviews took place in London, Edinburgh, York
(2004/5) and Oslo in 2008-10.
Our discussion of the findings is primarily structured around the three hypotheses outlined in section three above. In each instance, we report findings from the questionnaire and, where appropriate, further illustrate key points with interview quotes.
H1: The role of public sector funding and the GPF
We initially explore the factors influencing whether a charity has an ethical investment policy. Hypothesis 1a stated that charities that receive funding from the public sector are more likely to adopt an ethical policy. Table 2 provides data on income sources for the responding charities. The non-parametric Mann Whitney test confirmed that Norwegian charities had a higher level of public sector funding (significant at the 1% level).
31 This is consistent with social origins theory, which would lead us to expect more state funding of charities in countries with a social democratic tradition.
[Table 2 about here]
We used the binary logistic regression model below to test H1(a).
Descriptive statistics for the variables are provided in Appendix 4
32
30 In one case the marketing director of a charity was interviewed because the finance director was on sick leave. This marketing director had completed the questionnaire together with the finance director (and the finance director had suggested interviewing him).
31 Mann Whitney U = 688 significance 0,000. Non Parametric test used because the PublicSectorIncome variable is not normally distributed, see descriptive statistics in Appendix 4.
32 Appendix 4 also provides cross tabulations for some of the variables. The Kurtosis and Skewness statistics show the variables are not normally distributed. In addition to this model above we estimated other versions of it as a robustness check on the results. In order to better understand the impacts of individual variables we started with one explanatory variable, LnIncome (we also regressed other variables individually). Then
CharityType was added, followed by PublicSectorIncome and so on until we had the full model above. We
18

Ethical Investment Policy = β
0
+ β
1
LnIncome + β2CharityType + β
3
PublicSectorInc. + β
4
Religion +
β
5
Country +Ω
From prior research we know that size and type of charity (grantmaking or fundraising) can influence whether a charity has an ethical investment policy (Kreander et al., 2009).
Fundraising and large charities are more likely to have an ethical policy as are religious charities (Schaefer, 2004). We therefore use income as a proxy for charity size
33
. Charity type is a dummy variable with a value of one for fundraising charities and zero for grantmakers. Drawing on our theoretical framework we included public sector income as a proxy for state dependence. The PublicSectorInc. variable is based on the ratio of public income to total income. Religion is a dummy variable taking the value of one for charities classed in the ‘religion’ sector by Caritas and zero for others. Country is a dummy variable with a value of one for Norway and zero for the UK. The dependent variable takes the value one if the charity has an ethical policy and zero otherwise.
[Table 3 about here]
The results in Table 3 for the combined sample indicate that, in line with prior research, larger charities are significantly more likely to have an ethical investment policy. This effect was stronger in Norway than in the UK. While type of charity was not significant in this model, the odds ratio indicates that fundraising charities were more likely to have an ethical policy
34
. Religion is not significant in this model, whilst the country variable is significant.
In line with our expectations the key variable of interest, public sector income, was significant at the 5% level. The odds ratio indicates that more public sector funding increases the likelihood of having an ethical policy, supporting H1(a). Moreover, the odds ratio is 100 times larger for Norway than the UK, suggesting that this effect is much stronger also estimated models with Income as absolute numbers rather than the logarithm. The main results from the model with Income were similar to the model above.
33 For example, Hyndman and McKillop (1999) and Connolly and Hyndman (2003) measure charity size by income. We use the natural logarithm of income in millions of pounds. We also estimated regressions with size measured by investments instead. Public sector income was significant in these models also, while religion was not significant. Investment itself was not significant and R 2 was margianlly lower than in models with income as the size measure.
34 In several of our other regression models charity type was significant at the 5% level.
19

in Norway. Non-parametric Mann Whitney tests confirmed that charities with state funding were more likely to have an ethical policy (at the 5% level).
35
While the model explains 26.8% of the sample charities’ likelihood of having an ethical investment policy, it is clearly incomplete and care must be taken when interpreting these results. Specifically, our survey data revealed that desire to avoid investments that conflict with the aim(s) of the charity and key individuals can influence (establishment of) an ethical policy. Unfortunately, we do not have data for these factors for the entire sample.
A review of the ethical policies of Norwegian charities provided some support for our contention in H1(b), that those charities with a high degree of government funding are more likely to adopt the ethical investment policy of the GPF. Four Norwegian charities which received over 50% of their income from the public sector also had similar screens to the
GPF. This assertion is further supported by comments made by a number of our interviewees. The controller of a large Norwegian charity, for example, commented:
‘We will check our policies, we should not be invested in companies that the Government
Pension Fund has excluded’
(Controller, International charity, 1843 million NOK invested [£187m])
The interviews revealed that Norwegian charities on average have (less than) one staff member dedicated to investments. This limited competence is especially true in relation to staff with time to evaluate the ethics of investments. Such a situation is likely to lead to imitation and a homogenous field (DiMaggio and Powell, 1983).
36
Further evidence in support of H1(b) is provided when we consider the specific screens and ethical investment policies. Respondents were asked to indicate, on a 1-5 scale, the relative importance of five potential reasons for developing an ethical investment policy that are commonly found within the literature (see for example Kreander et al.
, 2009). Results are shown in Table 4, ranked in descending order of importance for Norway.
35 Mann Whitney U = 1279, p value 0,013.
36 The largest charity in Norway (measured by investments) had a finance director and one staff member in a
60% position with responsibility for financial investments. Most of our interviewees in Norway had responsibility for accounting and financial reporting in addition to investments; the implication is that most charities in Norway have no staff dedicated to investments, which are delegated to financial institutions..
20

Norwegian and UK charities are not significantly different in their views about the absolute importance of reputational risk and staff morale as reasons for developing an ethical investment policy. However there are significant differences; charities wider role in society and stakeholder pressure were both more important for Norwegian charities.
[Table 4 about here]
Charities wider role in society was identified as the most important motivation for establishing an ethical policy in Norway. Ethical investment can also be seen as part of the responsibility of charities which may have strong non-financial values underlying them.
37
By contrast, the most important reason in the UK was ‘other’ than the five pre-specified.
This was often linked to the view of the charity founder and/or religious belief
38
that a strong ethos should run through the charity including its investments.
Reputational risk was second in importance in both countries. This reason may be related to the highly publicised scandals in financial management of charities in both the UK (Buxton,
2005) and Norway. Norwegian charities have received negative media coverage concerning ethical issues, including investments.
39
The interviews also revealed that public concern affected the investment policy of some charities. For example, it was exposed in the media that a large medical charity in Norway had invested in Philip Morris (the tobacco company). The charity responded to negative media coverage by developing an ethical investment policy. Since the charity was a fundraiser, reputation was important and something had to be done to protect the image of the charity.
The quote below illustrates this:
‘In 2001 it was revealed that
[charity Y] had invested in Philip Morris shares and in weapons shares ... This resulted in a lot of attention in media
… ’
(Finance Director, medical charity, 667 million NOK invested [£68m])
Pressure from donors and peer pressure from other charities were not perceived to be important reasons for the development of ethical policies.
37 We mentioned the GPF before. In addition Norway’s leading insurance company Storebrand has been a champion of SRI, they have an SRI fund also for UK charities (Kreander, 2002). Another institution KLP, which manages pensions for the public sector has also been active in SRI.
38 Many UK charities are founded by Christian groups such as the Methodists, Quakers and the Salvation
Army. There are also many Catholic charities with a strong ethos.
39 For example, Kreftforeningen, a cancer charity has been criticised for unethical investments. Leaders in another charity, LHL had to resign because of inappropriate use of charity funds (Moe and Stenseng, 2007).
21

We contend that there may be some alignment between our findings in relation to the impact of public funding of charities in Norway and the reason given by the charities for the implementation of an ethical investment strategy. It would seem plausible that the provision of public money is somehow related to a field logic that sees charities conceptualising their actions in terms of their broader role in society.
H2: Disparate screens and policy influences
Our second hypothesis explores the differences in ethical screens and policy factors between charities in Norway and the UK. The different institutional fields and socio-cultural traditions lead us to expect differences in the content and operationalisation of ethical policies in the two groups of charities.
UK regulation has required that ethical investment screens are explicitly linked to the aims of the charity (Charity Commission, 2003, f86).
40
This is not the case in Norway and, consequently, ethical screens are significantly more common in Norway compared to the
UK. Table 5 shows the frequency with which the responding charities reported using certain ethical investment screens, ranked in descending order of importance for Norway. Overall,
51% of UK respondents employed negative ethical screens while 17% had positive screens.
In Norway 56 % of respondents had negative and 22% had positive screens. Perhaps as a consequence of having to explicitly connect ethical screens to charity mission, a wider range of ethical criteria was mentioned in the UK. For example, ‘other’ ethical criteria mentioned in the UK, but not in Norway, included peat extraction and discrimination against the elderly. Other concerns such as animal testing were also more common in the UK
41
. This is consistent with H2 regarding more variety in the UK.
[Table 5 about here]
In Norway the avoidance of weapons, pornography, and, tobacco producers were the most common ethical criteria. The UK respondents indicated the same top three screens, however the order and absolute significance differed. In the UK, the avoidance of tobacco was most
40 Recently UK charities have obtained more freedom to invest ethically (CFDG, 2010, Kreander et al., 2009).
41 In addition the CDFG (2010) survey documented use of many ethical screens by UK charities that were not mentioned by Norwegian charities (for example, genetic engineering and supply chain concerns).
22

important and of similar absolute incidence as in Norway. However, the avoidance of pornography and weapons were significantly less frequently employed in the UK. So too was the avoidance of oppressive regimes, alcohol, pollution and climate change. We contend that the differences in relation to weapons; oppressive regimes and pollution and climate change may be partially explained with reference to the GPF. We discuss these issues initially before turning our attention to the differences in relation to pornography and alcohol.
The use of the weapons criterion was significantly different between the two countries (5% level), with Norwegian charities more likely to exclude weapons manufacturers. The main ethical criterion the Norwegian GPF operates relates to weapons
42
which may indicate further support for our contention that Norwegian charity funds mirror the ethical investment policy of the GPF. Norwegian ethical funds and the Church of Norway have also excluded weapons manufacturers (Klausen, 2000; Bengtsson, 2008b).
Screening for oppressive regimes also differed significantly between both countries. The oppressive regimes criterion is significantly more common in Norway (1% level).
Commentators have argued that Scandinavian SRI is characterised by norm-based screens anchored in international agreements and conventions such as the UN Global Compact and the UN Human Rights Convention (Bengtsson, 2008a & b). Again, this could be linked to the use of human rights criteria and the prohibition of investment in Burma by the GPF
(St.meld.nr 16, 2008).
43
Other major SRI actors in Norway such as KLP and Storebrand also exclude companies based on human rights violations (KLP, 2009; Bengtsson, 2008b).
The use of environmental screens (pollution and climate change) is also more common in
Norway than in the UK (1% level). This result might be due to a higher proportion of conservation/environmental charities among the Norwegian respondents.
44
However, it may also be significant that the GPF screens investments based on pollution and climate change issues. In addition, the first three ethical funds for the private market in Norway were environmental funds.
42 Companies manufacturng nuclear weapons, cluster bombs and anti personnel mines are excluded from investment in the GPF (see also Appendix 2).
43 The GPF excluded Wal Mart based on human rights violations in 2005. Stiftelsesforeningen refer to the ethical policy of the GPF in a document which discusses investments.
44 9% of Norwegian respondents were conservation/environmental charities versus 5% in the UK. This difference is significant at the 5% level.
23

To summarise, significant differences between the ethical screening criteria applied in both countries were found, specifically in relation to weapons, oppressive regimes, pollution and climate change. We contend that these differences provide evidence in support of H2; however, the results also provide further evidence of the significant role of the GPF within the institutional field. These quantitative results are reinforced by our interview findings.
The following quote from the Guidelines for Investment (Dated 14/6/2007) and a clarifying quote from the interviewee from this large Norwegian social services charity illustrate this point:
‘ [Charity X] will immediately exit the fund if we become aware that the fund has shares in companies that the Government Pension Fund has divested from.’
When asked about sectors and companies the charity excluded from investment, the interviewee identified, in addition to weapons, pornography and alcohol:
‘companies that violate the environmental conventions and ILO conventions, I mentioned in relation to the Government Pension Fund Global, mainly, environmental and labor rights’
(Finance Controller, International activities charity, 1843 million NOK invested [£187])
This fundraising charity had a high degree of alignment to the ethical policy of the GPF.
However, significant differences were also found between the two groups of charities in relation to pornography and alcohol. Exclusion of pornography and alcohol is more common in Norway (1% level). These findings are consistent with Bengtsson (2008a) who found the exclusion of pornography to be common in Norway, but less common in Denmark and Sweden. While it is not possible to say anything conclusive about the reasons for the differences between the UK and Norway in this regard, we tentatively suggest that the cause may be related to the socio-historical influence of the church in both countries
45
. Maignan and Ralston (2002), for example, argue that the differences in US CSR disclosures
(compared to France and Holland) were due to the strong US ‘protestant background.’
Some ethical funds in Norway and the Church of Norway have avoided alcohol producers
(Klausen, 2000) and pornography. In Norway, the sale of alcohol is more restrictive than in
45 According to Mandyk (2010), over 80% of Norwegians were members of a Christian church, the figure for the UK was under 65%.
24

the UK, anything stronger than beer is confined to state monopoly shops 46 . These differences can be linked to culture and social origins theory (Anheier and Salamon, 2006;
Salamon and Anheier, 1998).
H3: Charity relationships with donors and beneficiaries
We asked charities about the importance of different potential influences on ethical investment policy. These factors were identified from the prior literature (see, for example,
Kreander et al.
, 2009; Sparkes, 2002; Salamon and Anheier (1998). Results are shown in
Table 6, ranked in descending order of importance for Norway.
[Table 6 about here]
Avoiding conflict with charity aims was the most important influence on the ethical policy for both Norwegian and UK charities. However, while the second most important factor in
Norway was to avoid investments that might cause potential beneficiaries to be unwilling to be helped; maximising returns came second for UK charities. These differences may be reflective of the different regulatory fields in both countries and, specifically, the stronger fiduciary duty imposed on UK charities.
Significant differences (at the 1% level) between the two countries exist in relation to investments which could alienate beneficiaries or have a negative impact on supporters. In line with H3, Norwegian charities seem more concerned about these stakeholders than UK charities (Table 5.5).
The quote below illustrates a potential conflict between investments and the beneficiaries for a large Norwegian charity:
Interviewer: if gold and precious metals are found and many villages are forcibly removed… Is it a problem to invest in such companies?
‘Yes, it is. We must take account of indigenous people who live there and their rights, then we have a problem.’
(Controller, charity with international activities, 55 million NOK invested[£6m])
This charity, which helps refugees in developing countries, seemed to identify the problem that investment in certain mining companies could ‘create more refugees’.
47
In other words,
46
In a referendum in 1919 about banning liquor, 62% of Norwegians voted for a ban and liquor was consequently outlawed between 1921 and 1926. Thereafter, liquor/strong alcohol in Norway has been confined to state monopoly shops.
25

such investments would be detrimental to the charities beneficiaries and could tarnish the reputation of the charity in the eyes of beneficiaries, donors and supporters.
A conservation/environmental charity in Norway was asked whether supporters had commented on investments. The interviewee responded that:
‘We have received comments on why we have an agreement with IKEA. We have also received questions and comments on why we have an agreement with Aker Bio Marine. It is because IKEA is very often viewed as a throw away company, and Aker Bio Marine is doing things that for some might seem controversial, they fish krill in the Arctic Ocean.’
(Marketing Director, Nature conservation charity, 3 million NOK invested [£0,3m])
Clearly this fund raising charity had at times been forced to justify its actions to its own supporters.
This evidence hints towards the existence of different stakeholder priorities and/or perceptions for UK and Norwegian charities. Additionally, Norwegian charities were significantly (1% level) more concerned not to make investments with which the public would not approve (i.e. avoiding immoral investments). This difference may also link to the
GPF in Norway and its high profile ethical investment policy. The interviews revealed that several Norwegian charities follow the GPF policy, illustrated by the following quote:
‘We will check our policies, we should not be invested in companies that The Government
Pension Fund has excluded’
(Controller, International charity, 1843 million NOK invested [£187m])
The standard deviations of the answers to the questions covered in Tables 4 and 5 were higher for the UK, indicating more diverse UK investment practice compared to Norway, in line with H2.
Engagement with company management was also significantly more important among
Norwegian charities. This finding may be linked to the fact that the GPF has an active engagement strategy. For example, in 2007 the GPF engaged with 60 companies about social issues, mainly related to the use of child labour and with 20 other companies about climate change issues (St.meld.nr.16, 2008). Financial institutions in Norway also have a
47 The charity operates in countries where both refugees and mining are issues. For example, in Colombia where international mining companies such as AngloAmerican, BHP Billiton, Rio Tinto and Xtrata are active.
Other countries where both this charity and international mining companies operate include: Democratic
Republic of Congo (AngloAmerican) and Uganda (Rio Tinto).
26

tradition of socially responsible investment with engagement. The insurance company
Storebrand engaged with over 400 companies in 2005 (Bengtsson, 2008a). Some Norwegian charities might imitate these two major SRI actors by including some form of engagement in their ethical policy. This is in line with H1b. Two Norwegian charities which engage with companies received 84% and 69% of their funding from the public sector. Following the
GPF, both charities also excluded weapon manufacturers.
48
In Norway 9% of respondents engaged directly with companies, while 33% of respondents thought their fund managers engaged on CSR issues on their behalf, i.e. indirect engagement. In the UK, 6% of respondents had engaged directly and 28% engaged indirectly.
We also use the binary logistic model below to explain whether charities consulted their stakeholders about investment policy as a test of H3:
StakeholderConsult = β
0
+ β
1
LnIncome + β
2
CharityType + β
3
PublicSectorInc. + β
4
Religion + β
5
Country + Ω
The results in Table 7 show that country is the most significant variable (1% level) and that
Norwegian charities are more likely to consult their stakeholders. Charities with larger income were also significantly more likely to consult stakeholders about investment policy
(5% level). A simple model explaining stakeholder consultation with just a country variable showed that Norwegian charities were six times more likely to consult their stakeholders.
The country variable was significant in all models at the 1% level
49
. The full model explains
34% of the observed variation in stakeholder consultation by charities about investment policy.
[Table 7 about here]
These results support our H3 and fit with social origins theory where the Scandinavian social democratic tradition seeks consensus via stakeholder consultation.
48 The charity receiving 69% from the public had most of the criteria in the GPF ethical policy in their policy
(see Appendix 2 for the GPF policy). The charity receiving 84% from the state has ties to trade unions and the labour party which has been in power in Norway since October 2005.
49 The Country variable was significant on its own and with different combinations of other variables. For example; together with CharityType, with CharityType and PublicIncome; with CharityType, PublicIncome and Ln Income; in a model with CharityType, PublicIncome, LnIncome and Inv. Size in addition to the modell reported in table 7.
27

Norwegian charities attached significantly more importance to the views of society, their peers and donors than their UK counterparts (1% level, see Table 4). Norwegian charities were more positive to investment disclosures to their stakeholders than their UK counterparts (1% level). This finding supports H3 of closer relationships between
Norwegian charities and their stakeholders. Perhaps this is so because Norway is a small country. Relational accountability (Najam, 1996) and conformance to common norms/values might be more important in Norway.
This study has investigated the ethical investment policies of UK and Norwegian charities.
While similarities in approaches to ethical investment and the types of ethical screens employed were found, notable significant differences were also observed. This is consistent with prior findings in relation to differences in financial practice for charities in Belgium and the USA (Jegers, 2011) and differences in ethical investment practices in Denmark and the
UK (Vallentin, 2000).
Differences between charities in Norway and the UK were found both in relation to the rationale for having an ethical investment policy and in its implementation (ethical criteria).
Our results indicate that Norwegian charities had significantly more public sector funding than their UK counterparts. We also found that charities with higher public sector funding were more likely to have an ethical policy. Both non-parametric tests and binary logistic regression results confirmed this ‘public sector effect’ and provide support for our contention that both the social origins underpinning the charity sector, and the presence of a dominant state institutional actor, the Government Pension Fund: Global, significantly influence the dynamics and logic of charity ethical investment. We found evidence that many Norwegian charities with public sector funding mimic the GPF ethical policy, explaining the more frequent use of environmental and weapons screens in Norway. Indeed, two of the nine Norwegian charities interviewed stated that they were likely to exclude the firms excluded by the GPF.
50
50 A third charity had investments with a financial institution which mimiced the GPF policy. A fourth charity stated that it would be natural for them to adopt the GPF ethical policy, however this charity did not have a formal ethical investment policy in place.
28

In the UK, where no such dominant actors exist, we found more diverse charity ethical investment practice (see also CFDG, 2010). The greater variety of ethical screens observed in the UK could also be due to a larger charity sector, shaped by the cultural background of the UK in line with the social origins theory. We also found that Norwegian charities placed significantly more emphasis on their stakeholders. While this is in line with differences in stakeholder orientation among firms from different European countries documented in
Maignan and Ralston (2002), extant evidence suggests that there is greater disclosure by UK charities (Kreander et al., 2006 and 2008). There seems to be a contradiction here, although we recognise that the UK charities are larger and might therefore have more resources for reporting. More extensive UK disclosure could be related to a size effect and a more developed regulatory regime. Further research is required on the international differences in charity disclosure.
Overall, our findings contribute towards understanding how institutional differences affect the regulatory dynamic within the field of charity ethical investment (Maignan and Ralston
2002). As we noted in the introduction, associational democracy models that underpin the development of some ‘third way’ thinking promote the development of the NGO and charity sectors as a potentially effective way of stimulating civic participation, providing public services and regulating markets (Ayres and Braithwaite 1992; McPhail 2010). This study begins to shed light on the regulatory capacity of charitable ethical investment in the UK and
Norway. We noted two key differences between charity ethical investments in both countries. Firstly, that charities in Norway have been unregulated in terms of investment policy in comparison to the UK sector and, secondly, that a key institutional difference between the two countries was the presence of the GPF in Norway. However, the results of our study indicate that the GPF serves a soft regulatory function to the extent that it influences the investment practice of Norwegian charities. While the effectiveness of the
GPF as a regulatory mechanism seems to be linked to Norway’s broader social origins, it does create a number of interesting and important questions about the broader potential of sovereign wealth funds to regulate market investment practices through the use of ethical screens and to contribute towards the promotion of a ‘civil economy,’ (Diamond 2011). It also generates important questions about the way sovereign wealth funds operate in relation to the public transparency of their investment practices. In contrast to the public disclosure of the GPF’s investment decisions, other sovereign wealth funds remain relatively opaque.
29

More research is needed on sovereign wealth funds, especially on their investment practices and how they affect charities and various market participants.
30

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36

The main UK charity regulator is the Charity Commission for England and Wales. This appendix provides a brief outline of how it defines a charity. The key is that the aims of a charity must be within the list below and the charity must be deemed to be of ‘public benefit’. For more information see www.charity-commission.gov.uk
Guidance on charitable purposes in England and Wales
To be a charity an organisation must have purposes (or aims) all of which are exclusively charitable; a charity cannot have some purposes which are charitable and others which are not.
The Charities Act 2006 defines a charitable purpose, explicitly, as one that falls within the following list of thirteen descriptions of purposes and is for the public benefit
1.
2.
3.
4.
5.
6.
7.
The prevention or relief of poverty
The advancement of education
The advancement of religion
The advancement of health or the saving of lives
The advancement of citizenship or community development
The advancement of the arts, culture, heritage or science
The advancement of amateur sport
8.
9.
The advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity
The advancement of environmental protection or improvement
10.
The relief of those in need, by reason of youth, age, ill-health, disability, financial hardship or other disadvantage
11.
The advancement of animal welfare
12.
The promotion of the efficiency of the armed forces of the Crown, or of the efficiency of the police, fire and rescue services or ambulance services
13.
Any other purposes currently recognised as charitable and any new charitable purposes which are similar to another charitable purpose
Source: www.charity-commission.gov.uk
(Accessed 29.11.2010).
37

These guidelines were adopted March 1, 2010. Before this, tobacco producers were not excluded but otherwise the guidelines were similar to these.
Exclusion of companies from the Fund’s investment universe
(1) The assets in the Fund shall not be invested in companies which themselves or through entities they control: a) produce weapons that violate fundamental humanitarian principles through their normal use; b) produce tobacco; c) sell weapons or military material to states mentioned in section 3.2 of the guidelines for the management of the Fund.
(2) The Ministry makes decisions on the exclusion of companies from the investment universe of the Fund as mentioned in paragraph 1 on the advice of the Council on Ethics.
(3) The Ministry of Finance may, on the advice of the Council of Ethics, exclude companies from the investment universe of the Fund if there is an unacceptable risk that the company contributes to or is responsible for:
a) serious or systematic human rights violations, such as murder, torture, deprivation of liberty, forced labour, the worst forms of child labour and other child exploitation;
b) serious violations of the rights of individuals in situations of war or conflict;
c) severe environmental damage;
d) gross corruption;
e) other particularly serious violations of fundamental ethical norms.
Source: www.regjeringen.no (accessed 6.5.2010.)
38

Country Organisation Sector 1 Title of interviewee
UK Charity 1 Social services
Size: investments 1
£273m Head of Finance
UK
UK
UK
UK
UK
Charity 2
Charity 3
Charity 4
Charity 5
Charity 6
International activities
International activities
Social services
Medical
Medical
£43m 2 Head of Auditing
£108m
£149m
£69m
Executive Secretary of
Finance
Trustee
Director of Finance
Confidential Head of Equities
£0.5m Head of Finance UK
UK
UK
UK
UK
UK
Norway
Norway
Norway
Norway
Norway
Norway
Norway
Norway
Norway
Norway
Charity 7
Charity 8
Charity 9
Culture, sport & recreation
Philanthropic intermediation
Conservation
Charity 10
Charity 11
Social services
Philanthropic intermediation
Fund Manager Fin. Institution
Charity 1 Religious
Charity 2
Charity 3
Charity 4
Charity 5
Charity 6
Charity 7
Charity 8
Charity 9
Medical
International activities
Nature Conservation
International
Activities/
Medical/social services
Environm. NGO
Philantropic intermediation
Social Services
Fund Manager Foundation/Financial institution.
£118m
£14m
£14m
£210m
£5000m
£142m
(1400 NOK)
£68m
£187m
(1843 NOK)
£0,3m
(3m NOK) 3
£6m
(55 NOK)
£1m
(5 NOK)
Note 4
£59m
(581 NOK)
£2m
(21 NOK)
£173m
(1.7 bil. NOK
Inst).
Director of Finance
Cash & Investment
Manager
Director of Finance
Director of Finance
SRI analyst
Head of Investments
Director of Finance
Finance controller
Marketing Director
Head of Finance
Chief Executive
Chief Executive
Head of Investments
Director of Finance
Fund manager 5
Notes to table:
1. Source for UK sector and size figures: Caritas (2006). Size in million NOK in 2008 (GBP/NOK Exchange rate at 6 th September 2008 used for conversion), these figures do NOT include bank deposits. Source for
Norwegian size figures: charity annual reports.
2. Connected charities had a further £183 million in investments.
3. By February 2009 this charity had sold its investment in shares.
4. This charity had 5.2 million NOK in bank accounts in 2005 (£0,53m) and often publicises its views about investment and ethics. The charity also has a contract with an insurance company which applies an ethical policy to investments for the charity’s staff pensions.
5. This interviewee was both a trustee for a sample charity and a fund manager for a financial institution with many charity clients. The amount of £173 is the sum of funds managed for charity clients. We interviewed senior staff for all charities.
39

Appendix 4 Descriptive Statistics of variables and Crosstabulation of Charity Type and Country variables
EthicalPolicy
Country
CharityType
PublicIncome
Religion
LnIncome
StakeholderCon sultation
Valid N
(listwise)
N
133
133
119
123
133
131
128
107
Minimum Maximum
Statistic
0,00
0,00
0,00
0,00
0,00
-4,51
0,00
Statistic
1,00
1,00
1,00
0,89
1,00
5,60
1,00
Mean
Std.
Deviat
Statistic
Skewness
Statistic Std. Error
Kurtosis
Statistic
Std.
Error Statistic
0,6391 0,48208
0,3383 0,47494
0,5378 0,50068
0,0924 0,21346
0,1504 0,35879
2,4049 1,90459
0,1172 0,32291
-0,586
0,691
-0,154
2,391
1,979
-0,840
2,409
0,210
0,210
0,222
0,218
0,210
0,212
0,214
-1,682
-1,546
-2,010
4,629
1,944
0,951
3,862
0,417
0,417
0,440
0,433
0,417
0,420
0,425
N is lower for CharityType because a few charities do not fit into the grantmaker or fundraiser categories. For a few charities data on public sector income was not available.
PublicIncome is measured as percentage of total income.
Kurtosis mesures if data clusters around a central point more than in the normal distribution.
If the statistic is larger than two times (or smaller than -2 times) the Standard error the variable is not normally distributed. We can reject normality for all variables in table above except CharityType based on the Kurtosis statistic.
Skewness mesures the assymetry of the distribution. Based on the skewness values none of the variables above are normally distributed. If the statistic is larger than two times (or smaller than -2 times) the Standard error then the variable is not normally distributed The issue of non-normality is why we use non parametric tests in the paper.
40

Ethical Policy and CharityType Crosstabulation
O = No ethics * Grantm = 0 Crosstabulation
Count
O=No ethics 0,00
1,00
Total
Grantmakers = 0
0,00 1,00
25
30
55
15
49
64
Total
40
79
119
SPSS Crosstabulation of charities with ethical investment policy (1 = has policy, 0 = no policy). Grantmakers = 0 and fundraising charities = 1.
Ethical Policy and Country Crosstabulation
O = No ethics * 0 = UK Crosstabulation
Count
O = No ethics 0,00
1,00
Total
0,00
0 = UK
1,00
33
55
88
15
30
45
Total
48
85
133
SPSS Crosstabulation of charities with ethical investment policy (1 = has policy, 0 = no policy). And Country UK = 0 and Norway = 1
41

Table 1 Non profit regime types
Public social-welfare spending
As percentage of GDP
Civil society employment as percentage
of economically active population
Low
Low Statist
High
Social Democratic
(Norway)
Source: Adapted from Anheier and Salamon (2006, p.106).
High
Liberal (UK)
Corporatist
42

Table 2 Sources of income for responding charities
Source of income Norway
%
Gifts 14
UK
%
16
Investments
Legacies
26
4
16
4
Public sector
Other
25
31
2
62
Total 100 100
Notes to table:
1.
‘Other’ includes: Income from fees, trading and Lottery.
2.
UK income based on 2005 figures for 87 responding charities.
3.
Norway income based on 2006/7 figures for 45 responding charities.
43

Table 3 Logistic regression results
Variable
LnIncome
Charity Type
PublicSectorInc.
Religion
Country
Constant
Nagelkerke R 2
Total sample
Coeff.
(sig.)
0.336*
(0.034)
-0.986
(0.117)
-2.91*
(0.023)
-1.94
(0.074)
-1.46*
(0.043)
3.68**
(0.003)
26.8%
Odds ratio
1.40
0.37
0.05
0.14
0.23
39.60
UK Sample
Coeff.
(sig.)
0.255
(0.25)
-1.24
(0.11)
-7.17
(0.067)
-20.49
(0.99)
21.22
(0.99)
35.5%
Odds ratio
1.29
0.29
0.001
0.000
0,000
Norwegian sample
Coeff.
(sig.)
0.37
(0.11)
-1.55
(0.31)
-2.3
(0.29)
-0.03
(0.99)
1.92
(0.99)
24.7%
Notes to table:
1.
Dependent variable is existence of an ethical investment policy (1 if yes; 0 otherwise).
2.
Significance level of variables shown below estimated coefficients.
3.
* significant at 5% level; ** significant at 1% level.
4.
Total sample size = 133 (N = 88 for UK and N = 45 for Norwegian sample).
Odds ratio
1.45
0.21
0.10
0.99
0.99
44

Table 4 Why develop an ethical policy? - Norway - UK comparison
Reason
Norway
Mean
Response 1,2
Std.
Dev.
UK
Mean
Response
Std.
Dev.
Difference between countries
(p-value) 3
Charity’s wider role in society
Reputational risk
Staff morale
3.67
3.39
0.61
0.57
2.95
3.02
1.2 0.000**
1.3 0.280
Pressure from donors
Peer pressure from other charities
2.44 0.92
2.11
1.76
1.11
0.97
2.29
1.28
1.22
1.6 0.300
2.0 0.000**
2.1 0.004**
Notes to table:
1.
Response scale: 5 = very important to 1 = not important at all.
2.
Reasons are shown in descending order of importance for Norwegian sample.
3.
Mann-Whitney test of differences between countries; * significant at the 5 % level; ** significant at the 1% level (two-tailed test).
4.
Table based on 46 responses for the UK and 32 responses for Norway.
45

Table 5 Use of ethical screens among charities
Ethical criterion
Weapons
Pornography
Tobacco
Oppressive regimes
Alcohol
Norway 1 % UK 1 %
57 34
Difference between countries
(p-value)
0.038*
2
48
46
37
35
29
42
15
17
0.000**
0.233
0.000**
0.000**
Gambling
Pollution
Climate change
Other
26
22
15
15
20
8
3
0.130
0.000**
0.000**
15 0.532
Notes to table:
1.
Does not add up to 100% as multiple screens common. Norway % based on 46 responses, UK % based on 88 responses.
2.
Binomial test of differences between countries; * significant at the 5 % level; ** significant at the 1% level (two-tailed test).
46

Table 6 Factors influencing charity ethical policies
Factor
Norway
Mean
Response 1,2
Std.
Dev.
UK
Mean
Response
Std.
Dev.
Difference between countries
(p-value) 3
Avoidance of conflict with the aims of the charity
Avoidance of investments that might make potential beneficiaries unwilling to be helped
Avoidance of investments widely considered inappropriate on moral grounds
3.82 0.52
3.67 0.54
3.67 0.48
3.47
1.88
2.56
1.0 0.020*
1.9 0.000**
1.6 0.000**
Avoidance of investments that might alienate supporters
Maximising investment return
Engaging with company management on ethical issues
Voting the shares on ethical issues
3.45 0.68
2.94 1.16
2.84 1.08
2.22
3.26
1.66
1.8 0.000**
1.1 0.430
1.9 0.008**
1.67 1.03 1.62 1.9 0.28
Notes to table
1.
Response scale: 5 = very important to 1 = not important at all.
2.
Factors are shown in descending order of importance for Norwegian sample.
3.
Mann-Whitney test of differences between Norway n = 34, for UK n = 53
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Table 7 Consultation with stakeholders - logistic regression (H3)
Variable Total sample
LnIncome
Charity Type
PublicSectorInc.
Religion
Country
Constant
Nagelkerke R 2
Coeff.
(sig.)
0.44*
(0.030)
0.960
(0.300)
-2.06
(0.250)
1.35
(0.280)
-3.64**
(0.000)
-2.69
(0.206)
34%
Odds ratio
1.55
2.60
0.127
3.85
0.026
0.070
Notes to table:
1.
Dependent variable is consultation with stakeholders on investment policy (1 if yes; else 0).
2.
Significance level of variables shown below estimated coefficients.
3.
* significant at 5% level; ** significant at 1% level.
4.
Total sample size = 133 (N = 88 for UK and N = 45 for Norwegian sample).
48