A new paper from FaithInvest and investment consultant NEPC titled Faith-based Investment Governance explores the topic of investment governance for faith organizations. An earlier FaithInvest paper, From Faith Values to Investment, focused on the importance of investment policy statements and guidelines (abbreviated as IPS in this publication, IP&G in other FaithInvest content) as the essential governing documents required for the successful integration of faith values with investments.
The new paper looks beyond investment policy statements to the broader framework of investment governance, which is described by the CFA Institute Research Foundation as ‘...the effective use of resources – people, policies, and systems – by an individual or governing body seeking to fulfill a fiduciary duty to a principal in addressing an underlying investment challenge.’
Faiths, as values-based organizations serving a public purpose, operate in an environment that also requires a range of faith-based considerations, because many faith groups hold that investment governance should reflect faith-specific values, integrated throughout the governance framework.
Governance essentials
The paper begins with a review of the typical structure, attributes, and characteristics of investment governance and is written by Rick Ciccione, Partner at NEPC. It then continues with a look at unique governance considerations for faith-based investors, written by Mathew Jensen, CFA, Director of Faith-Consistent Investing Programmes at FaithInvest.
In describing the 'essentials of good governance', Rick Ciccione writes that 'effective investment governance lies at the intersection of detailed financial analysis and the organization’s mission and culture'. He continues with detailed descriptions of the 'tools of good governance', such as 'a clear delineation of roles and responsibilities among the various people, teams or service providers (e.g. investment consultant or advisor) that provide input to the board, and a defined process for how they interact'.
'Effective investment governance lies at the intersection of detailed financial analysis and the organization’s mission and culture' – Rick Ciccione, Partner, NEPC
And, he stresses the importance of regular communication and collaboration between the board and other decision-making bodies to ensure that the full team's actions align with the overarching goals and values of the organization.
Implications for the faiths
Picking up on the theme of good governance in the context of the faiths, Mathew Jensen writes, 'just as a faith organisation’s beliefs, teachings and values can be integrated or “mapped” to important documents such as investment policy statements, faith values can also be integrated into a faith organization’s overall governance structure, including processes and responsibilities related to the board, investment committee, ethics committee, and internal and external managers'.
While ethics committees are not necessarily the exclusive domain of faith-based investors, their contribution to achieving faith-consistent integration is essential' – Mathew Jensen, CFA, Director of Faith-Consistent Investing at FaithInvest
The paper goes on to describe how ethics represent a unique and essential element of investment governance for the faiths. Mathew Jensen explains that, 'While ethics committees are not necessarily the exclusive domain of faith-based investors, their contribution to achieving faith-consistent integration is essential'. Activities of the ethics committee can include making or recommending investment and engagement policy, monitoring or managing the funds under its control in support of an ethical stance in accordance with the aims of the faith organization, and evaluating the faith organization’s broader ethical questions and concerns, among other activities.
As emphasised in the paper, there are resources and solutions available for faith organizations seeking to construct robust investment governance structures, including networks such as FaithInvest and consultants such as NEPC.
We encourage all faith-based organizations to pursue best practices in order to achieve a high degree of faith-consistency within the investment portfolios that serve their mission.