This article is a part of our ESG Special Report week
Responsible investing, sustainable investing, faith-based investing and ESG investing are all different names for investing based on personal values or beliefs, whether those beliefs are leaving a better world for future generations, combating the effects of climate change, or investing based on religious texts and preaching.
But are the two comparable?
What we currently call ESG Investing is relatively new - it was only 15 years ago that the UN impact study “Who Cares Wins” helped coin the ESG label. Meanwhile, 35 years before that, organizations such as the Interfaith Centre on Corporate Responsibility (ICCR) had already emerged.
Today, ICCR stands at around 300 members – from asset managers, to pension funds and faith-based institutions - with US$500 billion in assets. Motivated into action out of the South African apartheid, the ICCR identifies as having “pioneered the use of shareholder advocacy to press companies on environmental, social, and governance issues”.
This pioneering attitude generates returns. “There’s a lot of overlap between ESG and faith-based investing,” says Julie Tanner, Managing Director, Socially Responsible Investing at Christian Brothers Investment Services. She adds that faith-based investors often get a head start on the alpha as they become involved in issues like climate change because they’re “morally unacceptable – before they rise to materiality and become ESG.”
Caring for the environment
Susana McDermott, Director of Communications at ICCR says the organization finds “common ground” to build strength and reap the rewards of addressing a broad spectrum of sustainability and social issues, including corporate governance, health, climate change, financial services, food, human rights, and water – several environmental issues.
They’re on a mission, McDermott says, to help those with the greatest disadvantage, and greatest potential upside. Their members were targeting climate change in the 1980s because they needed to protect God’s creation, before it became material to balance sheets.
And they’re also leading ESG efforts today. Last month, a US$5.1 trillion portfolio checkmate was made in a statement from the ICCR and a wider international network of investors against 35 oil and gas companies to do the right thing around a potential rollback of U.S. methane-emissions rules.
“Responsible investing can be when religious actors are at their best,” says Rob Fohr, Director of Faith-Based Investing and Corporate Engagement at the Presbyterian Church U.S.A.
They’re highly organized, and share clear and long-established values, says Christina Cobourn Herman, Program Director for Climate & the Environment at ICCR likening it to investing for “both financial and moral reasons.”
Financial performance is a factor in the world of faith-based investing - it’s just achieved differently. A little more altruism, some unique rules and supercharged engagement form the pillars of these investment strategies.
How faith guides investing
“We must do no harm,” says Joshua Brockwell at Azzad Asset Management, managing assets based on the Seven Tenets of Halal Investing, pointing out that asset managers have a role to play when it comes to making the world a better place.
Faith-based investors, like ESG investors, use screens to filter out incompatible investments, but with a twist. In terms of risk-mitigation, sticking with what’s prescribed in religious law is a safe bet. Sharia law, for example, forbids certain sin stocks (and pork). But it also forbids the giving or taking of interest, or ‘riba’, which Brockwell says helped reduce client exposure to the financial crisis thanks to the firm’s active approach to investment ‘purification’.
The investment approach of the Presbyterian Church U.S.A is about “supporting, not hurting that which God has given us.” Fohr says that when it comes to investing, this motto has translated into a successful “sustainable and long-term portfolio.”
The investing agencies of the Presbyterian Church U.S.A. combined manage over US$10 billion. The church uses a committee-based structure to implement the faith-based investment policy directives from the church’s General Assembly, a process that Fohr compares to the U.S. Congress. The committee follows a phased selective divestment process for companies that are not moving towards compliance with the church’s values, a key exercise that differs from an average ESG fund.
They ask, “If we sell our stock, who’s going to buy [it], and will they have the same or similar values as the church?” Fohr says.
Sustainable engagement
Faith-based investment approaches allow for a deep dive into a particular cause that reaches some of the poorest and most marginalized people, explains Tanner. Faith-based investors like her are avid supporters of shareholder resolutions and legislation around issues such as human trafficking, forced labour and the protection of privacy and children online – in other words, front runners on the ‘Social’ pillar of ESG.
These funds often take an active part in shareholder engagement.
Brockwell and Azzad Asset Management, for example, filed three times with Chevron (CVX) to reform its business in Myanmar amidst a genocide against the Rohingya people. Brockwell was “remarkably pleased” with the commitment from Chevron to a set of initiatives and specific actions including the engagement and training of the local government, as well as securing a pledge from the company to set up a multi-stakeholder working group of companies, investors, and non-governmental organizations to develop best practices for firms operating in countries at risk of crimes against humanity.
Some of the shareholder engagement can be an imperative, such as ‘T’ruah’, explains Rabbi Rachel Kahn-Troster, of the Rabbinic Call for Human Rights. A mitzvah, for example, is a religious duty. “A worker has been created in the image of God”, if they are not paid on time, it’s an issue, she says, speaking of a faith-based approach as a “responsibility for the whole world and community” that helped boost shareholder engagement and activism around fair food programs and the success of a campaign to improve conditions for tomato pickers in California.
“It’s about the dignity of a human person,” says Tanner, speaking on the actions and successful influence around improving human rights in supply chains from textiles, to food, taking on the top five clothing brands in the most marginalized and poor labour markets, and Campbell’s Soup (CPB) in Indonesia.
Closer to home, in North America, a coalition of activist nuns is working on improving gun safety laws in the U.S., and in 2018 won a shareholder resolution to get Smith & Wesson’s parent company, American Outdoor Brands, to explain how the company monitors gun violence.
Passive options as well
Faith-based investing can also come in the form of quantitative indexing – directly targeting mainstream benchmarks to help ensure a fund is suitable. The Reform Jewish Values Fund for example, aims to have a carbon footprint 80% lower than the benchmark MSCI ACWI.
In the case of climate change and their carbon footprint, the Jewish concept of ‘tikkun olam’ or ‘to perfect or repair the world’ applies, says Stephanie Berger, Director of Marketing and Communications at the Reform Pension Board. And the concept of justice or ‘tzedek’ as it applies to social issues, explains Berger, inspires them to beat the Fund’s benchmark by at least 40%.
Though ESG investing and religious investing have differences, they also have several similarities. The fact remains that it pays to do the right thing – ESG and religious investing both generate alpha, and whatever your beliefs, there are funds that cater to almost every religious or secular value. Which, if any, you choose for your portfolio ultimately depends on what matters to you.
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