Faith-based investing can claim some credit as the original ESG, having put values-based investing into action for decades.
As faith-based investing continues to trace a path that parallels and even overlaps with ESG investing efforts under a range of monikers and labels, the two also share long-standing concerns.
Growth in Faith-Based Investing
February witnessed a notable example of this growth with the launch of the first actively managed, biblically responsible ETF: FIS Biblically Responsible Risk Managed ETF (NYSE:PRAY). Biblically responsible investing (BRI) prioritizes an approach to investing based in scripture as a way to help Christians to align their investment decisions with their faith. These and other faith-based investors have the choice between active investment management and passive funds with a managed risk ETF.
This development came as biblically responsible ESG investing firm Inspire Investing celebrated the 5-year anniversary of its two founding ETFs, Inspire Global Hope ETF (NYSE: BLES) and Inspire Small/Mid Cap Impact ETF (NYSE: ISMD).
Other faith-related investments have likewise taken ground in the active management space. For instance, Islam-related investment portfolios and Shariah-compliant funds take measures to comply with restrictions on paying and receiving interest. Examples of other faith-based funds that integrate ESG principles include the Jewish Communal Fund and Buddhist Churches of America Endowment Foundation.
On a practical level, both faith-based and sustainable investors aim to strike a balance between getting the best possible return and adhering to their principles.
Where ESG and Faith Meet—and Struggle for Clarity
As with ESG investing, faith-based investing faces a gray area regarding metrics for measuring adherence and impact. Determinations of value and worth can also vary according to whom you talk to, pointing to a similar need for more unified metrics.
Although the desire to avoid “sin stocks”—such as tobacco, weapons, adult entertainment, or alcohol—carries extra resonance among faith-based investors, other stocks are trickier. Ave Maria Mutual Funds describes itself as “America’s largest family of Catholic mutual funds built on pro-life beliefs” and only invests in one mega-cap tech stock—Microsoft—because the company stopped contributing to Planned Parenthood. However, Inspire Investing gives Microsoft a negative score on its “objective faith-based scoring model” based on four categories: LGBT philanthropy, LGBT legislation, abortion philanthropy, and LGBT promotion.
At the same time, many religions carry injunctions to protect the planet. Should faith-driven portfolios eliminate oil companies, including ones developing sustainable energy plans? What about defense companies? Similar questions challenge ESG investors, opening the door for these groups to look to one another for cues.
Balancing Returns with Impact
On a practical level, both faith-based and sustainable investors aim to strike a balance between getting the best possible return and adhering to their principles. Meanwhile, external factors and events such as the ongoing pandemic and war in Ukraine influence the discussion over how to attain both impact and returns.
Those interested in faith-based investing have a growing number of examples to illustrate how to match investment strategies with religious views. Comparisons with ESG and impact investing may be imperfect—but just as these sectors have developed more accurate and widely accepted metrics, there are similar opportunities for the faith-based investment sector and those it seeks to serve.
Ultimately, investors seeking impact through ESG and faith-based investing can make use of these parallels to navigate challenging ongoing questions. As the faith-based market develops, a growing number of products will inevitably become available—as will more metrics and standards—so that those who want to align their religious beliefs with their investments will be better positioned to make more informed choices and achieve greater impact.