Many of the pioneers in socially responsible investing were faith-based investors. Yet relative to the size of today’s impact investing market, these investors have shied away from significant involvement in impact investing.
Why? After surveying faith-based investors about their interest in impact investing, the Global Impact Investing Network (GIIN) found three primary challenges faith-based investing faces.
In its Engaging Faith-Based Investors in Impact Investing report, the GIIN found that one major challenge of pursuing impact investing involves a perceived lack of investments with the right risk-return profile. Some 72% of faith-based investors reported addressing that issue to be a “significant challenge” or “somewhat of a challenge.”
This may be because many organizations have limited internal resources to focus on developing and deploying investment strategies as well as little experience in navigating financial markets. As a result, they often turn to outside advisors, who may have only slight familiarity with impact investing.
One way to increase faith-based investors’ understanding of impact investing is to step up collaboration. For example, the Catholic Impact Investing Collaborative helps faith-based investors share impact investing knowledge. Through small, regional gatherings, experienced investors mix with those new to the industry, helping to make the transition to impact investing easier.
2. Mission Alignment
Many faith-based investors report that it is not easy to pinpoint opportunities in sync with their religious tenets. The GIIN found that 68% of survey respondents described achieving that goal as a challenge.
Yet many faiths’ beliefs align with commonly pursued impact investing themes. According to the GIIN, faith-based investors often cite advancing human dignity and protecting the environment as values they use to guide investment decisions. These objectives line up particularly well with the United Nations’ 17 Sustainable Development Goals, which focus on ensuring that all people experience economic opportunities, have access to affordable and clean energy, and face reduced inequalities, among other areas. Faith-based investors can also use negative screening to expressly avoid investments that conflict with their values.
For faith-based organizations wary of betraying their ethos by shifting from a tradition of charity to returns-generating investments, exposure to their peers’ track records of success with impact investing could help them see the potential to scale and sustain benefits for communities in need.
3. Perceived Trade-Offs between Impact and Returns
Many faith-based investors use their portfolios to finance philanthropic activity and operating costs. As a result, they may be hesitant to engage in new investment strategies that they fear could hurt returns. Over half of faith-based investors surveyed reported this perceived trade-off as a challenge.
According to the GIIN, faith-based investors are hungry for research and data on the financial and impact performance of impact investments. Such information could go a long way toward putting to rest questions about imagined compromises between making an impact and earning returns. The GIIN’s 2020 impact investor survey found that two-thirds of impact investors are interested in market rates of return, and 88% report meeting or exceeding their financial expectations.