Charity leaders expect their investment risk appetite to increase in the next two years with four fifths - 81% - agreeing that is the case, although many fear a market correction.

They also reckon ESG focus is restricting what they can invest in, according to research from wealth manager Rathbones.

The study of UK charities with a collective £4.07bn of stock market-related investments revealed they were looking to boost returns and put rising funds to work.

Around 85% said their investment risk appetite had increased over the past two years, although 14% said their risk appetite had dropped.

Among the nearly one in five (18%) of charity executives who say their organisation’s risk appetite will decrease in the next two years there are concerns about a possible market correction. Others say the growth in ESG investing is reducing the investments they can focus on.

Around three-fifths - 61% - believe a market correction is on the way with the same number pointing to the influence of ESG on risk appetite. More than half - 56% - said they believe markets will become more volatile.

Almost half - 44% - said their risk appetite will decrease because of growing scrutiny of their investment strategy while third (33%) said they have to focus on income rather than growth.

Andy Pitt, head of charities at Rathbones said: “Charity finances have been under huge pressure with rising demand for their services running into a fall in donations and a squeeze on investment returns from volatility and weak performance in UK markets.

“An increased risk appetite is understandable given the recent experience and it will be positive if it is managed in the right way. Managing risk allows charities to expose their portfolio to assets that may generate a return above the traditionally perceived lower-risk assets such as cash.”

He said trustees should be prepared to take on some investment risk but must be satisfied that the overall level of risk they are taking is right for their charity and its beneficiaries.

• Research was commissioned by Rathbones through Pureprofile to interview 101 senior executives at UK charities including board directors, finance directors, investment managers and investment directors during May 2024