Global, August, 12 2019 -
As of 2016, 126 faith-based organizations of “diverse religions and creeds,” such as Islam, Buddhism, Judaism and Christianity, and with a collective $24 billion in assets, had committed to divesting from fossil fuels, with many feeling a moral imperative to provide clean energy to the world’s poor.
In 1758, at their yearly meeting in London, all Quakers were called to “to avoid being in any way concerned, in reaping the unrighteous Profits” from what they called the “iniquitous practice” of slavery. Members of the same faith would later be among the loudest to call for divestment from the apartheid regime in South Africa.
In 1891, Pope Leo XIII issued the Rerum Novarum encyclical that called all members of society to contribute to its betterment and outlined the relationship between labor and capital in a Christian society. Today it lends its name to a fund supporting Catholic businesses and philanthropy.
And Annuities And as of 2016, 126 faith-based organizations of “diverse religions and creeds,” such as Islam, Buddhism, Judaism and Christianity, and with a collective $24 billion in assets, had committed to divesting from fossil fuels, with many feeling a moral imperative to provide clean energy to the world’s poor.
There are similar examples from all faiths—from Judaism to Sikhism to Buddhism—around the world. Faith-based investors have long recognized the importance of ensuring their money is not out of step with their convictions.
So, while the increased attention that values-based investing has received may be new, many faith-based investors have been doing this type of investing for generations.
From individuals to large religious organizations, these investors have a rich history of shareholder activism to improve the conduct of investee companies. Another popular strategy is portfolio building with a focus on screening out the negative; avoiding “sin stocks” or other assets at odds with their beliefs.
However, more recently, some of these investors have aimed to go a step further. Impact investing enables investors to set out a proactive thesis on the good they want to achieve and pursue it through investments, adding rigor and clarity. It builds on practices such as screening and shareholder activism to go out into the world and find additional investment opportunities that further the goals chosen in line with their faith.
Faith In Impact; Impact In Faith
Simply put, impact investing is investing to achieve both a financial return and positive, measurable social or environmental impact. It differs both from traditional philanthropy, which aims for impact but is unconcerned with financial returns, and from other forms of values-driven investment which aim at the avoidance of harm, but not necessarily the creation of additional, measurable positive benefits. Our recent research suggests the global impact investing market now stands at USD 502bn, but there is potential for much more.
Impact investing is another way for investors to deepen the ties between their capital and their faith. Unlike other responsible investing practices, impact investing is attractive to investors in that it allows them to know the actual impact their money is making.
Tim Macready, CIO of Australian superannuation fund Christian Super, explained that his organization’s involvement in impact investing was prompted by beneficiaries: “Our members and beneficiaries asked us what good we were doing with their retirement savings, and how we were investing those savings for their future.”
However, faith-based investors are sometimes faced with constraints that can make exploring impact investments daunting. Chief investment officers (CIOs) and chief financial officers (CFOs) investing on behalf of faith organizations may use the returns from their investments to finance philanthropic activity, or even simply for operating costs for places of worship, schools, or hospital systems. Others must be mindful of a fiduciary duty to beneficiaries. As Sylvia Poniecki at Wespath Benefits and Investments—which manages retirement funds and other plans for the United Methodist Church—says: “As a fiduciary, we need to make sure that we are well protected long term and that our participants are made whole in the event of a loss.” Alongside reflecting their values then, there are good reasons for faith-based investors to prioritize maximizing their returns.
Faith And Impact Investing Applied
In fact, there are many ways to make impact, including approaches that are suitable for those with a fiduciary duty. While some faith-based investors pursue impact investments with concessionary returns, others won’t target anything less than market-rate, risk-adjusted financial returns. According to the 2019 GIIN Annual Impact Investor Survey, two-thirds of impact investors pursue market rates of return and more than 90% report that they are satisfied or very satisfied with their financial returns.
There is also diversity in terms of how an impact program can be structured. Some investors position impact as a major part of their portfolio; others operate a self-contained impact-focused carve-out. Christian Super, for example, operates its impact investing practice as a carve-out from its main fund, with its own team and approach. As of 2017, this accounted for roughly AUD 100m of a total portfolio of AUD 900m, deployed across private equity, private debt and infrastructure. By focusing on themes such as health, education and housing, the superannuation fund advances one of its core values: respect for human life.
Then there is the question of what to actually invest in. One option is to invest in specific impact products targeting specific environmental or social impacts. In 2017, Malaysia issued the world’s first green sukuk: an Islamic green bond, which invests in specific sustainable infrastructure projects, such as renewable energy generation assets. The sukuk reflects the Islamic faith by embodying both the Shari’ah concern for protecting the environment while tying investment to specific identifiable assets. Investors could seek to invest in similar products aligned with their values.
Or, impact-interested faith-based investors could lend directly to impact projects and disadvantaged individuals. Of Wespath’s USD 3.2bn invested in impact investments, USD 900m is deployed in its Positive Social Purpose (PSP) Lending Program (as of 2017). Over a nearly 30-year history, the PSP program has targeted market rates of return by lending to affordable housing and community development projects in the United States and in microfinance opportunities worldwide. Among its many impacts, the program has financed over 52,000 housing units for underserved populations in the United States.
Whatever values an investor or faith-group wants to advance, and whatever risk and return appetite the CIO is comfortable with, there is an impact investment strategy to suit. There is a way to use the success and apparatus of the impact investing movement to further the mission of their faith, be it care for one’s neighbor, or protection of creation and the natural world.
Or at least, there can be. Impact investing is still growing, still calling for more capital to help solve some of the world’s most pressing problems, from climate change to poverty. That means there is plenty of momentum and appetite for faith-based investors to work with existing impact investors and organizations to design an impact approach that reflects both their faith and their financial requirements.
Those familiar with the history of values-based investing know that faith-based investors have long been at the heart of it. We hope to help these institutions continue to innovate, drawing on the power of impact investing to better serve their beneficiaries, better impact the world and further align their spiritual and financial aims.