Our approach to faith-based investing

Laudato Si’ – on care for our common home was published in 2015 by Pope Francis, urging every single person to listen to the “cry of the Earth and the cry of the poor”. Climate change is increasingly impacting more and more lives, with the adverse effects often falling disproportionately on those already worse off.

The connection between faith and investing dates back centuries and the institutions and individuals involved in this area have been among the first to consider how their financial decisions can impact society and the environment. The social teaching principles of the Catholic Church are built upon protecting and promoting every single person’s worth and investments are increasingly viewed as an inseparable extension of this mission.

Faith-based investing reportedly can be seen as far back as the early 1800s when Quakers and Methodists avoided certain companies identified as pursuing business practices not in keeping with their beliefs, such as the sale of alcohol or tobacco. Roman Catholic organisations spoke out publicly against apartheid in South Africa in the late 1960s, with Catholic nuns advocating that firms withdrew direct exposure to South Africa and using their pooled retirement assets to file shareholder resolutions against companies identified as not promoting equality and inclusivity. 

The level of interest and awareness in responsible investment in recent years has undergone a monumental increase. Breaking into the mainstream, while undoubtedly positive on the whole, has not come without issues arising from this success.

Before going further, it is important to define what I mean by responsible investing, and how it relates to Environmental, Social and Governance (ESG) factors. Responsible investment is a strategy and practice that incorporates ESG factors in investment decisions and active ownership. 

The ESG acronym has clearly played a role in the rapid development in this space, regularly popping up in a wide range of places in recent years. Perhaps due to this proliferation, ESG is often misused as a catch-all term. It is essentially a framework designed to enable investors to assess how a company operates and the impact of its actions. 

To be clear, there is no such thing as a perfect company. Responsible investing is designed to aid investors in identifying how a company’s business operations impact areas they care most about, allowing them to then construct their portfolios accordingly.

It should be said that these are not asset managers whose sole investment criteria relates to building a better planet. Rather, they are mainstream and household names, with the likes of Blackrock, JP Morgan, abrdn and Schroders in the firing line. Simply put, these firms have been incorporating ESG factors and stewardship, no doubt to differing degrees, within their investment process.

Taking a step back, in basic terms, following a responsible investment approach can fall into two, broad categories:

1. Risk mitigation and identifying opportunities: the integration of ESG factors and stewardship within the investment process.
2. Specific responsible investment related objectives (like those in faith-based investing): this builds on the first element and relates to linking products or strategies to specific responsible investment related outcomes or objective.

For most of the aforementioned asset managers their strategies will fall in the first bucket of risk mitigation. This can cause problems as this is too dangerous, or “woke”, for certain US states, while for others it is not enough.

This delicate balancing act can feel like walking a tightrope for many asset managers as they attempt to articulate clearly what they are doing and what they hope to achieve. Certainly, the slap dash labelling of everything as “ESG” has not been helpful and resulted in a muddle. The different approaches to being a responsible investor tend to get lumped together into an amorphous blob, and we have come to a juncture where we need to think about the approaches we take.