Faith-based investing can have meaning only in practice

As a global faith-based membership organisation, FaithInvest works with our members on a wide variety of investment policy statements, reflecting the particular values of many different faith traditions. In my role as a member of the investment solutions team at FaithInvest I've had the opportunity to work with a number of members who, having articulated their value statements well, struggled with the subsequent task of translating those values into appropriate investments.

There are many tools and tactics available for faith organisations to use to implement their investment policies, three notable categories of which – often used in combination – are screening, engagement and impact investing. 

Screening – negative and positive

The process of screening faith-based investment positions includes listing specific investments to fully avoid, as they are involved in activities clearly antithetical to the faith’s values. Typical examples include fossil fuels, adult entertainment and weapons. This type of negative screening often takes the form of specific documented exclusions and/or securities of particular companies, countries, or other issuer types, and has been used for decades by faith investors.

However, an emerging complementary activity to negative faith screening is positive faith screening: What should the faith own or emphasise in the portfolio that specifically aligns with the faith’s values? For example, one FaithInvest member organisation specifically focuses its portfolio on investments led by women. 
Many popular ESG stock indices available today take a dual approach – underweighting or excluding low-ranked ESG companies (negative screening), and overweighting high-ranked ESG companies (positive screening).

• Read Mark Carney’s views on the power of positive screening: Ex Bank of England boss Carney: impact investors are alchemists for the world’s ‘insurmountable problems’

Engagement – reactive and proactive

Proxy voting, where shareholders have the opportunity to let their voices be heard on specific corporate matters, is one of the most common and popular methods for implementing engagement. Proxy voting policy can be aligned with faith values, so whenever a proxy arrives, it is checked against the proxy voting guidelines, and voted appropriately as instructed on the issue. 

An example from one faith includes the following proxy voting guideline, based on the faith’s “Just World” value: “We support [proxy] proposals asking companies to adopt a comprehensive human rights policy based on existing international standards. Such standards would include the 1948 UN Universal Declaration of Human Rights and the International Labor Organization’s (ILO) core labor conventions.”

While proxy voting policy is reactive to receiving a ballot, more pro-active engagement is increasingly spreading throughout the global faith community, primarily in two areas. 

First, actively promoting a faith-value-aligned issue to be added to a company’s proxy ballot, with the goal of changing an activity of the company. This can be a complex and involved process today for shareholders, though there are organisations such as Interfaith Center on Corporate Responsibility and JLens that are very good at organising, aggregating and leading faiths through the proxy nomination process.  

Another approach is directly engaging company leadership through dialogue on an issue or value of importance to the faith, with the goal of changing company behaviour. For example, Green Century Capital Management filed a resolution with chemical company Chemours in November 2021 on behalf of the Felician Sisters of North America, asking the company not to mine near the Okefenokee National Wildlife Refuge. Twenty years ago, a similar shareholder proposal helped convince DuPont, Chemours’ corporate predecessor, to abandon mining plans. 

Impact investing – direct and indirect

Impact investing is another tool for value-based investing, one that seeks a financial return in addition to a purposeful and specific “values outcome”, as defined by the faith organisation. 

The definition of impact investing varies, and can span a range of instruments, from liquid special purpose government bonds to tiny private deals, and across developed and emerging economies. Impact investments share a common thread, however, in that they tend to be targeted and specific to a value or theme, such as affordable housing or healthcare, and sometimes they are aligned with the United Nations’ Sustainable Development Goals. Successful impact investments – those that achieve both financial returns and values outcomes – often take the form of private equity or private debt investments, sometimes as a direct holding, such as providing capital to a local company developing affordable housing. 

Regardless of method, impact investing seeks a values-aligned outcome along with a financial return. For example, a few years ago, the Missionary Sisters of the Sacred Heart of Jesus (widely known as the Cabrini Sisters) built an impact investing portfolio that includes participation in the Mission Driven Finance Freedom 100 Fund, a unique impact investment that posts bond for immigrants held in detention centres in the US. With bail bond loans often ​unavailable or exorbitantly priced for this group of people, this allows immigrants to await their asylum trials outside of a detention center, with their friends and family.

For investors not participating in direct investments, there are impact mutual funds, which are professionally managed and diversified across a specific impact theme or themes. 

Impact investing underscores the desire to do good while doing well. 

The selection from simple to complex

Selecting the investment techniques and vehicles that are most appropriate for any given faith organisation’s value-driven objectives is a process that involves careful consideration. Overall, a good way to think about these faith positions is from simple to complex.

The more complex faith positions often involve being proactive or direct and purposeful around faith values

Many faith investors have already incorporated some of the easier to implement faith positions, such as negative screening, or proxy voting policies that align with faith values. The more difficult or complex faith positions often involve being proactive or direct and purposeful around faith values; proposing proxies, engaging management, pursuing impact investments. Your organisation’s goals and resources will drive these choices.

Helpfully, there are organisations, including FaithInvest and others, along with peers, who can help translate values to positions, and positions to types of activities – then capture and document these positions and activities in the investment policy and guidelines, enabling a virtuous cycle supported by ongoing “integration audits” to keep on track.

Header Image courtesy of Freedom for Immigrants and Mission Driven Finance

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