Sustainable investing is sometimes called values investing, and for good reason – not every human has “maximizing their wealth” as an exclusive goal. For many investors – most actually – the goal of investing is to enhance their financial position while acting in alignment with their personal values.
As the ESG label indicates, a lot of investors interpret the word “values” to mean those associated with sustainable environmental and social outcomes. But that’s a new-fangled definition. It’s an Aha Moment for a lot of investors to discover that you can invest in strategies that take a more religious approach to values.
Faith-based strategies
While many religions encourage responsible financial stewardship, the majority of faith-based investment options apply Christian, Catholic or Islamic principles. These investments attempt to reflect the moral and ethical guidelines espoused by these faiths, ensuring that capital is allocated in a way that is consistent with a faith-based worldview.
How do they do that? Thomas Hlohinec, founder and chief investment officer of Rise Financial Partners, which offers biblically responsible investment portfolios for their Christian clients, notes that there is no single approach.
“One person may desire to include negative screens to avoid ‘sin stocks,’ which might include casinos or alcohol and tobacco companies,” says Hlohinec. “Another person may want to emphasize companies that are making the world a better place, such as cancer research companies, clean water or those known for shareholder advocacy, financial stewardship and community engagement.”
Here are just a few examples:
- Eventide Dividend Growth Fund uses traditional analysis techniques, but incorporates values guidelines in its company evaluations, such as “demonstrating a concern for justice and peace” and “promoting family and community.”
- Catholic Responsible Investments Equity Index Fund maintains a screen-out list of companies deemed inconsistent with Catholic values. The sponsor, CBIS, also engages companies to present Catholic perspectives to management.
- The Amana series of funds, including Amana Income Fund, apply Islamic principles that prohibit interest, speculation and investments in industries such as alcohol, pork, gambling and conventional banking.
“Simply put, faith-consistent investing can be any approach that takes faith values into account when making investment decisions,” says Steven Owen, strategic marketing and communications lead for FaithInvest, a nonprofit that helps religious institutions invest according to their principles. “The essential element is to discern which values are most dear and incorporate these into your planning from the very start.”
Faith-based vs. ESG
Faith-based funds are often viewed as a more religiously conservative alternative to ESG funds, but in truth there are a lot of similarities between the two groups. Which makes sense – most faith principals are intended to reduce harm to individuals or communities over the long-term. The same is true of ESG funds – even if their take on what causes harm may differ.
Faith-based and ESG funds also share risk/return qualities that need to be considered in your financial planning. In the short run, for example, avoiding large segments of the economy – such as alcohol for a faith-based fund or oil and gas for an ESG fund – can hamper your performance.
Screening out key market sectors also limits your investment universe, which theoretically could mean less diversification and more volatility compared to traditional mutual funds.
Over the long run, though, faith-based funds (like their ESG counterparts) have performed competitively as a group. While faith-based funds may exclude certain high-growth sectors, they often focus on industries with long-term sustainability, such as technology, health care and consumer goods.
Engage your advisor
For investors who see personal finance and religion as being in two very different buckets, the existence of faith-based investing options can be an eye-opening Aha Moment.
If you are a person of religious conviction and you haven’t discussed this with your advisor, there’s good reason to do so. Ask about your options, and if there are choices that might fit with your investment goals. Also be sure to ask about expenses. Some faith-based funds have slightly higher management fees due to the additional analytical or administrative work required for religious compliance.
“It’s important to know it is possible to align your investments and values while achieving your financial goals,” says Hlohinec. “A simple question can be ‘Is there a way my investments can better reflect my beliefs and values?’ Whether those values are rooted in faith, social responsibility or other guiding principles, a good advisor should be open to exploring strategies that align with what matters most to their clients.”
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