Discovery Path: ESG & Impact – Faith-Based Investing Part I
To become a better steward it is important to follow the financial wisdom in the Bible. In 1 Timothy 6:17-21, Paul emphasises the believer's stewardship of two riches: God's wealth and His Word.
In the current context of impact investing, biblically responsible investing (BRI) is a way of relaying the apostle Paul's call to investors to consider the management of their capital as an extension of their faith and a powerful catalyst for social and environmental change. In recent decades, there have been significant innovations in the area of faith-based investments in alignment with the principles of Christian values to render BRI strategies attractive also to non-congregational investors. It is estimated that while Christian individuals or institutions probably fund or control more than $30 trillion in investments (through 401(k) plans, individual stocks, general insurance accounts, public pensions, foundations, and other sources), only about $360 billion is currently deployed in explicitly Christian faith-aligned strategies.
Understanding Biblically Responsible Investing
Like any other type of investment philosophy, BRI aims to maximise returns for investors. Where it differs from the traditional, secular approach to investing is in the constraints placed on the selection and objectives of the investment. In July 2018, the third Vatican conference on impact investing drew attention to the issues facing the poor and the environment and presented several successful projects that put Catholic values into action in the capital market and investment industry.
Although the idea of Christian faith-based investing dates back to the 1800s, when the Quakers launched the Free Produce movement, an international boycott of goods produced by slave labour, until the 2018 Vatican conference, very little had been done to develop a unique approach to faith-based investing. Over the years, Pope Francis has repeatedly urged in his encyclicals to address the global challenges of climate change and poverty alleviation. His words have highlighted the wider mission of living a positive life in line with values and mission - and that includes how and where we invest.
Biblically Responsible Investing (BRI) versus Socially Responsible Investing (SRI)
The extension of BRI principles to investment often aligns with other ESG-SRI principles but has its own specificities. In 2003, the United States Conference of Catholic Bishops (USCCB) established guidelines for the Catholic management of financial resources. These guidelines include the protection of human life and dignity, economic justice and environmental protection. Other denominational philosophies may use negative screening techniques and/or positive screening approaches and various criteria. The table below provides an overview of some faith-based investment strategies and the screening criteria they consider.
NEGATIVE SCREENING STRATEGIES
Based on the negative selection (exclusion) established by the USCCB, since 2013 the S&P Dow Jones offer a series of indices for investors who do not want to violate religious norms in their passive stock and bond investment strategies:
S&P 500® Catholic Values Index (Ticker: SPXCVUP)
S&P Developed Ex-U.S. Catholic Values Index (Ticker: SPEKCVUP)
Global X S&P Cthlc Vls Dvlpd ex-US ETF (Ticker: CEFA)
S&P U. S. Catholic Values Aggregate Bond Index (Ticker: SPCVAGGT)
S&P 500 Catholic Values Investment Grade Bond Index, (TICKER; SP5CVIGT)
Does Faith-based investing work?
Recent studies dispel some of the long-standing perceptions that incorporating faith-based criteria, in addition to traditional investment criteria, is correlated to underperformance and high portfolio concentration. This is no longer the case, probably due to lower fees and increased investment options across all asset classes and to a range of sophisticated approaches, from restrictive screening to environmental, social and governance (ESG) integration, etc. These approaches allow for an alignment of investment decisions with personal values without necessarily sacrificing financial returns. In addition, investors can choose to align their entire portfolio with faith-based goals, or just a portion.
Do BRI funds sacrifice returns?
A study by the Christian Investment Forum, which tracked the returns of 35 Christian equity funds over 15 years to December 2020, found that performance is not reduced by incorporating biblically responsible investment criteria. In fact, Christian funds earned 7.1% per year on average over this period, compared to 6.3% per year for other equity funds. The study also attributes a slight outperformance to Christian bond funds over secular fixed-income funds in general, with a 4.2% annualized return compared to 3.8%.
For example, the $880 million Ave Maria Growth Fund (Ticker: AVEGX) has outperformed the S&P 500 Index year-to-date, as well as over the 3, 5, and 10-year periods. This performance was achieved without holding any of the top-performing FAANG stocks represented by Facebook, Amazon, Apple, Netflix and Google (Alphabet). Microsoft is the only technology mega-cap that the Ave Maria funds can hold as it recently stopped contributing to Planned Parenthood.
Similarly, Eventide Gilead (Ticker: ETGLX), a $3.6 billion faith-based fund, is up more than 12% in 2021, after a 55.42% gain in 2020. By comparison, the S&P 500 is up 28.71% in 2021 and gained 18.40% in 2020.
In conclusion, According to data compiled by Lipper- Refinitiv, the universe of faith-based investing comprises less than $28 billion in total assets across approximately 150 funds. It is an investment style still largely overshadowed by the more popular and faster-growing ESG-SRI- Impact category, which has over $12 trillion invested in over 900 funds. But it has grown rapidly over the past five years, increasing its total assets under management by 33% and expanding its offering to 38 different fund categories, covering most debt and equity classes, as well as private equity, venture capital and tangible (real-asset) asset finance.
To continue to grow, the faith-based investment sector can rely on incredibly loyal and sticky investors, who are not likely to shy away during tough times and economic downturns, because Values and outcomes, including the non-financial impacts of a given investment, are measurable investment goals for them.
ILLUSTRATION: ALEX NABAUM
Next Discovery Path: ESG & Impact Investing Faith-Based Investing Part II - Mapping the Christian Investment Landscape