What Would Jesus Do? In Other Words, What Can We Learn from Faith-Based Investors?
What would Jesus do? — was the question guiding Taeun Kwon‘s quest to better understand the world of faith-based investing. Taeun is a researcher at CSP and in a recebt webinar, Taeun, Director of the Global Impact Investing Network Sean Gilbert and Director of Impact Investing at Missionary Sisters of the Sacred Heart Kayoko Lyons engaged in a discussion to explore the drivers behind faith-based investors. Time was also dedicated for reflections in regard to similarities and differences to the secular investment world.
Taeun’s interest in the topic led her to talk to over 30 organizations that describe themselves as operating on faith-based values. Already early on in her research project, Taeun noticed that a typical faith-based investor did not exist. Yet, one of the common denominators was an ethics committee that oversaw and guided much of the investment process. An approach secular investors could pilot as well?
So who are the faith-based investors? How do they make their decisions, and what difficulties do they face? The answers are in the discussion below.
Highlights from the Q&A
1. Much of our conversation today focuses on issues common to all impact investors, such as understanding the impact profile of risk/return/impact or structuring capital and sourcing deals. What are some of the issues particular to faith-based investors and how does faith influence decision-making in a different way from traditional investors?
Taeun: What I observed was the existence of the ethics committee as a unique institution, and the regular activity of taking “God’s perspective”, whether it’s through the ritual of praying or going to retreats to discuss and meditate on what God would do.
Kayoko: I personally came from a secular impact investing background, so I had the perspective that there was something very different and unique about faith-based investors. However, when I joined the faith-based investment world, I realized that we all have the same goals. One of the differences I found was in terms of terminology. In the finance world, terms like risk-adjusted returns and low risk are common. One of our Sisters actually told me to stop using the word risk, and instead start saying high or low probability of losing your money. Another difference can be seen in the screening out of investments based on values.
Taeun: On the terminology-side, I also realized that there are mixed feelings regarding the Sustainable Development Goals (SDGs). They are widely used for finding agreements, but faith-based investors often feel that the SDGs are too short-term of a goal.
Sean: We, too, went into the space of faith-based investors expecting to find a big difference between secular and faith-based investors. However, we found that there actually aren’t many. The financial questions people ask in the faith-based community resemble the kinds of questions that are being asked in the secular community. In many ways, the investment processes that faith-based organizations go through is very similar to that of secular organizations. One way in which secular investors entering the sphere of sustainable investing might differ from faith-based organizations is that oftentimes, faith-based investors already have strong values from the start that they naturally integrate in their investment processes.
2. In terms of the Missionary Sister’s impact portfolio, does it include active investment in the capital markets?
Kayoko: While we committed up to 25% into private markets, we are not at that level yet because we just started. The majority of our portfolio is invested in public markets. We have also been working with investment advisors and consultants to move from negative screens to all positive ESG-funds. The bulk of our portfolio is hence already invested in such funds.
3. Do many faith-based investors care about environmental issues? I naturally associate faith-based investors with socially responsible investing and social justice related issues.
Taeun: It is true that faith-based investors have a strong tradition in advocating for social justice related issues, representing the S (social) of the ESG (Environmental, Social, and Governance). The Catholic church currently shows great interest in refugee and immigrant issues, which might be a good example of this. It is also true that depending on the region, practicing Christians might have an overlap with the population that does not believe climate change exists or is caused by human activity. In such cases, the organization might be prevented from investing more progressively in environmental causes. Nevertheless, I find that this is not necessarily a reflection of faith. Many faith-based organizations I have interviewed view the environment as equal to social aspects. This is often based on the belief in creationism (God created this world) and stewardship (we have an obligation to take care of it).
4. Why was a particular ethics committee filled with 20-something year old men? Is that typical?
Taeun: It was not — That was rather an extreme example of what could create a stir up within an ethics committee to drive impact investing.
5. Is there a difference in terms of instruments and assets that faith-based investors invest in?
Taeun: Within the Christian faith, not necessarily. The choices of instruments and assets are quite in parallel with their secular counterparts, very much depending on their risk/return profile. Of course, when it comes to the Islamic faith, there are special instruments that are Sharia compliant, which can be quite interesting from an impact investing perspective.
6. Kayoko mentioned a lot of very impact-driven strategies, but I also realized that not everyone has the same flexibility. Sean, do you know of any organizations that have embarked on the journey with more restrictions in place?
Sean: Usually, it all starts with an interest, and consequently the organization starts to pursue a particular outcome. For many organizations, a certain orientation towards social services or refugees, like in Kayoko’s organization, is part of their DNA. In practice, things start moving when someone starts asking whether some part of their capital could be used towards a given purpose. Most of them start out by tipping their toes into the water and trying to allocate some small part of their funds towards these goals, and typically this happens in the private market. The hardest part is getting better at formulating what the investment is supposed to achieve. One of the things that comes with impact investing is that oftentimes, there will be something more specific to the type of investment vehicle used, and it is here that it can take quite a lot of time getting comfortable. It also will take some time to figure out how to measure the impact that a particular investment has.
7. I talked to a lot of faith-based investors. Some were saying they have already been active in impact investing. However, some were saying that they are in sustainable and responsible investing, but for them the impact would be against fiduciary duty. Have you seen some drivers that could help jump over that hurdle?
Sean: The choice about what kind of a return you pursue and whether or not that is aligned with fiduciary duties is a choice you make before you start looking for anything. The question then becomes: Can you find investments that match your financial profile and also match whatever ethical, social, or environmental purpose you’re pursuing? There is evidence out there in terms of the portfolios that people hold, that you can have investments that are both market rate and align with your interests.
8. Kayoko, you also mentioned some factors that made it possible for you to become so impact-driven. What were these?
Kayoko: Yes, I think it’s worth mentioning that we’re very unique. First of all, we’re very fortunate to be in good financial health. When you have more high finances, it forces you to be more thoughtful in terms of making sure to get the exact rate of return that you need in order to support costs. We have the liberty of having more flexibility and being able to act boldly as we start out. We also have really bold leadership. I think this is the case in many religious women’s organizations. Every Sister I’ve met is very bold, fierce, and powerful, and very much understands why this is necessary. But there’s also the fact that our governance structure allows our leadership to make these decisions. We have talked to other faith-based organizations that have a whole lot of committees and bureaucracy to go through before an investment, as well as external, more traditional Wall-Street advisors. So I think these three factors — financial health, bold leadership, and the governance structure — have really helped us achieve a lot.
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