Faith-based investing is a way to invest capital in accordance with religious teachings. This can take a variety of shapes: faith-based investors may avoid investing in industries or companies that conflict with their beliefs; they may also seek positive social or environmental impact inspired by their faith, potentially using their leverage as shareholders to drive change, too. In some cases, they may follow religious principles of finance, such as Islamic investors who adhere to Shariʽa when structuring investment vehicles and conducting transactions, and Jewish investors who follow halachic teachings on business ethics.
Why Faith-Based Investors Have Embraced Impact Investing
However their religious values inform their investment philosophies, faith-based investors join the wider community of impact investors in that they seek some level of financial return alongside a social or environmental benefit.
Although the term “impact investing” was coined in 2007, members of diverse faiths have a long history of making financial decisions with faith-based considerations in mind. For example, since the 18th century, Quakers have divested from companies that profit from atrocities like slavery. Muslims have followed financial principles such as a prohibition on charging interest since Islam’s founding, and beginning in the mid-20th century, Islamic banks have applied Shariʽa to modern investments. In 1977, the Reverend Leon Sullivan, a Baptist pastor and civil rights advocate, drafted a set of corporate responsibility principles that guided divestment from apartheid South Africa.
Thus, for many faith-based investors, embracing impact investing means applying a new label to familiar practices, rather than adopting an entirely new approach to finance.
Faith-Based Investors Find Diverse Paths to Socially Responsible Investing
Faith-based investors can choose from a number of methods to achieve their impact goals. One is screening, or selecting, investments according to impact criteria. For instance, through its New Covenant Funds, the Presbyterian Foundation uses positive screens to invest in companies with strong track records on environmental, social, and governance (ESG) issues. It uses negative screens to rule out investments in companies that profit from weapons manufacturing, human rights violations, for-profit prisons, tobacco, alcohol, or gambling.
Some faith-based investors have taken a stand on key issues by divesting. The Lutheran World Federation, driven by the view that responding to climate change is part of caring for creation and pursuing justice, has divested from fossil fuels and has asked its members to follow suit. Caritas Internationalis and several other Catholic organizations have also divested from fossil fuels due to their belief that climate change hurts the poor and threatens the common good.
Faith-based investors may also advocate for their values through proxy voting and dialogue with companies. For example, Friends Fiduciary uses shareholder engagement to promote its Quaker values; in 2019 it filed resolutions with 27 companies and participated in dialogue with 28. It has signed a number of As You Sow initiatives, including a letter to General Electric on coal production and an investor statement on workplace equity disclosure.
Want to learn more about faith-based investing? Read:
- Faith-Based Organizations among Leaders on Fossil Fuel Divestment
- Shareholder Engagement and Gun Control: Faith-Based Groups Take a Stand
- Where Are Jewish Investors Seeking Impact?
- Reaching Impact through Islamic Investing
- Catholic Climate Covenant and Catholic Energies Take Action on Climate Change