Why “What Would Jesus Do” Is a Question Every Impact-Driven Investor Should Ask Themselves
Faith-based investing is often considered as old as religion itself and religion is seen as having played a central role in the early development of sustainable and responsible investing. But where do these trailblazers stand today? How has the field of faith-based investing developed? What insights can it offer the impact investing community at large, and vice versa?
These questions are the focus of the recently published CSP report Unleashing the Potential of Faith-Based Investors for Positive Impact and Sustainable Development. In it, co-authors Taeun Kwon and Viktoria Samberger provide an in-depth overview of the faith-based investing space and identify learnings for impact-driven investors, both religious and otherwise.
The report highlights learnings in three key areas:
- Decision-making processes defined by strict exclusion criteria, supported by ethics committees, and refined through collaborative reflections.
- Obstacles to impact consisting of the lack of leadership support, knowledge gaps, and misconceptions about return.
- Opportunities for exchange between faith-based investors and their secular counterparts in order to find solutions to shared challenges, fill impact gaps effectively, and move both sectors forward.
“Our research found great richness in the processes and rituals faith-based investors have developed in order to align their values with their actions,” Kwon said of the report. “While not all of them are at the forefront of impact investing, there is a lot to learn from the progressive ones that can benefit the wider impact investing community. We hope that by fostering exchange between faith-based investors and the secular impact investing community, we can tap into centuries of learnings on how to create impact.”
How do faith-based institutions make investment decisions?
While the processes applied by many institutional faith-based investors resemble those in value-aligned investing more broadly, three aspects stand out: detailed exclusion criteria, ethics committees, and the integration of reflective discussions into decision-making. These were identified as valuable enablers for effective, structured, and impact-oriented investments within faith-based institutions.
Value-based exclusion criteria
The most notable feature distinguishing faith-based investors from their secular counterparts is their strong exclusion criteria. Informed by their religious values and missions, institutions determine which industries, companies, and areas they are unwilling to support and allocate their capital accordingly.
All of the faith-based investors Kwon and Samberger consulted had investment policies that include negative screening criteria.
“Even smaller faith-based organizations seek to align their investments with their values,” Kwon noted. “Yet secular organizations of similar size might believe they don’t have the capacity to pursue that.”
While exclusion is commonly applied as a first step in sustainable investing, it has been shown to have only limited potential as an impact approach.
Several interviewees also mentioned the limitations of negative screening as only providing an opportunity to steer away from the bad, rather than amplify the good. As one senior pension fund investor put it, there is a strong will to go beyond filtering out what their community is against and instead use their investments “to demonstrate what Christian values are all about and what we are for.”
This has driven more faith-based institutions to include positive screening, thematic investment, and ESG integration in their investment strategies. Ultimately, realizing impact requires decisive steps in this direction: from signalling to stewardship to financing impact directly.
Ethics committees
Another prevalent feature found among large, institutional faith-based investors is the ethics team or committee. Generally composed of members with expertise in ethics and theology, the committee is tasked with informing investment strategies from these perspectives. It often has a role in defining the organization’s overarching exclusion policy, as well as advising the investment team in unclear cases.
However, the impact of the ethics committees was noted to go beyond informing investment decisions. These committees can also support institutions in increasing their investor impact through shareholder engagement activities. While shareholder engagement is better suited to driving incremental improvements in companies than transforming industries, it is one of the most impactful ways for investors to create change.
Engagement has been shown to be most effective when investee companies are experienced with ESG, when the suggested practices have low implementation cost, and when investors pushing for change are influential. Influence traditionally relates to the number of shares an investor holds, but also includes other forms of power— such as authority and expertise.
On-going reflection
The research also underlines the role of reflective discussion in increasing the impact of faith-based investors. Rather than simply following a set of rules from the investment team or depending solely on the input of an ethics committee, investment decisions were found to be discussed widely and reflected upon regularly.
The report zooms in on the case of the endowment fund of a European church illustrating the role of discussion in the early stages of their impact journey:
“While people were welcoming to the idea, everyone still had their own opinion about what an impact investment is, what role it should have within the portfolio, and how it should be implemented. [Arriving] at a cohesive strategy required debate and time within the investment team.”
“These conversations enable faith organizations to create a culture of aligning their values with everything they do,” Kwon shares. “This intentionality often leads them to adopt more progressive investment decisions and policies than they might have otherwise.”
What holds faith-based investors back?
The hurdles faced by faith-based institutions seeking to increase their impact investing activities are familiar to many aspiring impact investors. A lack of commitment from senior leadership, difficulties in accessing relevant support and expertise, as well as misconceptions and requirements related to returns were identified as factors inhibiting the achievement of impact goals.
Endorsements from institutional leaders can make or break an institution’s impact investing efforts — including in the faith-based space. In contrast, when a CEO or CIO advocates for impact, as was the case in two of the faith-based institutions highlighted in the paper, impact processes are accelerated.
Another issue is the lack of knowledge and expertise, both within faith-based institutions and among the investment professionals on whom they depend upon. Most of the faith-based institutions involved in the study rely on external advisors and managers, particularly in selecting their underlying investments. As such, their impact potential is highly dependent on the interest and knowledge of those advisors. Since expertise in sustainability and impact investing is still hard to come by, many institutions struggle to find the support they need.
Finally, there is the challenge of returns. Depending on the organization type, faith-based investors have different goals and expectations. Pension funds are subject to regulations and have clear financial targets, whereas development agencies and foundations may be hesitant to embrace impact investing over philanthropy due to the philosophical implications of generating a return. While impact investment returns can range from market-rate to concessionary, institutions without the relevant expertise have difficulties in finding opportunities that suit both their mission and financial goals.
Some female-led religious institutions involved in the research serve as inspiring examples of prioritizing mission-aligned impact over market-rate return.
“Women-led religious organizations are committed to their mission and are often far more socially radical and adhere to social justice principles more stringently than any mainstream secular impact investor,” one of the interviewed asset managers shared. “They have that very passionate, fiery justice DNA in them.”
A case elaborated in the report details how a female-led organization that had faced a liquidity event and was serving increasingly older and fewer members, decided to use its funds to implement its mission during the lifetime of its community rather than creating an endowment to ensure continuity. This allowed them to be radically impact-oriented and include impact-first and concessionary investments in their portfolio.
Moving forward: knowledge-sharing and collaboration
In many ways, impact investors and faith-based investors have been working in parallel and, given their similarities, both groups stand to benefit from increased dialogue.
For instance, secular impact investors have made great strides in defining processes, tools, and frameworks that can be an enormous resource to faith-based investors looking to increase their impact.
Faith-based investors, on the other hand, have developed effective ways of facilitating value-based decision-making. It is common in the faith-based space to make time to share meals, contemplate guiding principles, and consider the presence of a higher being when faced with challenging decisions. Such rituals can ease tensions, enable solution-finding, and connect individuals to their and their organization’s purpose. Dedicated opportunities to reflect and reconnect can help prevent “mission drift” and keep the shared visions clear.
Knowing that both faith-based investors and secular impact investors have a history of community building, a need to develop new expertise, and a desire to learn from others in the field, huge potential for collaboration exists. By calling attention to these similarities and furthering the conversation, the new report represents a first step in that direction.
“For a long time, the working title of this report was WWJD — What Would Jesus Do,” Kwon recalls. “The more I dove into the topic, the more relevant the question became. There is so much to gain through the simple practice of asking ourselves: what is the morally right thing to do? How can we put impact first, and how can we break away from assumptions that narrow our options? These hard questions enable the investing sector to actually be able to unleash the impact potential of the billions under management.”
Curious to hear more about impact investing in the faith-based space? Listen to report co-author Taeun Kwon in conversation with Global Impact Investing Network Director Sean Gilbert and Director of Impact Investing at Missionary Sisters of the Sacred Heart Kayoko Lyons. The full report “Unleashing the Potential of Faith-Based Investors for Positive Impact and Sustainable Development” is available for download here.
