Investing with Intention: Guidance for Small FBAOs Seeking Values-Aligned Investment Solutions

In this two-part series, we aim to provide small, faith-based asset owners (FBAOs) with guidance that assists them in establishing and refining their approach to faith-consistent investing (FCI). This guidance complements FaithInvest’s comprehensive analysis in “Faith-Consistent Investing and Smaller Organisations” (2023) by focusing on specific actions that small FBAOs can initially pursue to better align their investments with their values before turning to professional service providers like consultants and outsourced Chief Investment Officers (OCIOs).

In this first article we outline steps to help identify and select investment strategies that reflect a faith’s core values. In the next article we’ll focus on additional actions small FBAOs can take to further advance and refine their FCI programs once they have made their initial investments.

The Challenge for Small FBAOs

Unlike larger, institutional FBAOs with robust resources and dedicated staff, smaller FBAOs often rely on volunteers and trustees to manage their organization’s assets. Limited in size, smaller FBAOs often lack access to bespoke direct management solutions, such as separately managed accounts, that allow for the creation of customized solutions that meet their faith and fiduciary investment objectives. Rather, these FBAOs are instead confined to investing in off-the-shelf mutual funds and ETFs. Despite these constraints, FBAOs possess several tools to ensure current and future investments align with their faith-driven values and fiduciary objectives.

A key step in the FCI journey is to explore new investment solutions explicitly designed with sustainability and/or faith-values in mind. The landscape of sustainable investment solutions has evolved significantly over the last decade with many asset management firms now offering mutual funds and ETFs that cater to a wide range of sustainable investing themes and practices that often resonate with faith values.

Understanding the Landscape of Faith-Aligned Funds

To get started, FBAOs must first understand the different types of investment strategies (funds) available to them. Sustainability-driven funds often use various approaches to align investments with specific values. Common values-aligned approaches for mutual funds and ETFs include:

• Positive & Negative Screening: Many funds consider a company’s management of key Environmental, Social, and Governance (ESG) issues into their investment analysis. These funds often screen companies based on their performance on these ESG issues by using an ESG rating developed in-house or by an external service provider. For instance, funds like the iShares ESG Aware MSCI USA ETF or the Vanguard FTSE Social Index Fund invest predominantly in companies with high ESG ratings and will often exclude sectors deemed incompatible with certain ethical standards.

• Thematic Investing: Certain funds, such as the Impax Global Environmental Markets Fund, focus on specific themes that may align with faith-based values, such as clean energy, water conservation, promoting gender equity, or affordable housing. These funds provide targeted exposure to companies or projects that contribute to positive environmental or social benefits.

• Impact Investing: These funds go a step further by actively seeking to generate measurable social and/or environmental impact alongside financial returns. They invest in companies addressing specific challenges, such as poverty alleviation or climate change. They measure and report on the positive impact generated by the investments in the fund using specific, pre-defined sustainability metrics and key-performance indicators. While impact investment funds have historically been more prevalent in alternative asset classes (i.e., private equity, infrastructure, etc.), there are also publicly traded equity and fixed income impact investment funds, such as Wellington’s Global Impact Fund and the Amundi Impact Social Bond fund. Funds like Amundi’s are fixed income investment solutions comprised of green, social, and/or sustainability bonds. These are debt instruments issued to finance projects with positive environmental or social impacts. Investing in these types of green/social bond funds allows faith-based investors to support initiatives like renewable energy infrastructure or sustainable agriculture, amongst many other activities, that may directly align their investments with their values.

Practical Steps for Finding the Right Funds

• Discerning and Defining Faith Values: The first step is to clearly define the core faith values that will guide your investment decisions. Example questions a FBAO can ask themselves during this process include: What ethical considerations are most important to the organization? What investment opportunities might be in direct conflict with the organization’s mission? This clarity will guide the FBAO’s search and help ensure that the organization selects funds that genuinely reflect its beliefs.

• Research Fund Options: Once an FBAO has defined their core beliefs, they can start researching funds that align with them. There are numerous online resources, platforms, and services that can be utilized to help source potential investment opportunities, such as:

• Examine Fund Documentation: Don't rely solely on marketing materials. Closely examine the fund's fact sheets, prospectuses, and disclosure reports to understand its investment strategy, screening criteria, and impact metrics. UK and European-based FBAOs should review sustainability-related regulatory disclosures (i.e., the UK Sustainability Disclosure Requirements (SDR) and the EU Sustainable Finance Disclosure Regulation (SFDR)), which have significantly developed over the last several years to provide investors with increased transparency regarding a fund’s incorporation of ESG / sustainability issues into its investment process.

• Assess Fund Credibility: Evaluate the fund's commitment to sustainability and impact. Look for explicit statements of sustainability objectives, clear thematic interests, and/or measurable Key Performance Indicators (KPIs) that demonstrate progress toward any specified sustainability goals. Question funds whose sole approach is integrating financially material ESG considerations into the investment process, yet are labeled/marketed as ESG-focused, sustainable, or similar.

• Consider Utilizing ESG Ratings Providers: Reputable ESG rating agencies, such as MSCI and Sustainalytics, can provide valuable insights into companies' sustainability performance. These ratings can help you assess the ESG credentials of the companies within a fund's portfolio. Many of these agencies charge for access to this information though, so if this is not an option, consider asking the fund manager for information on any ESG ratings used in fund construction.

• Evaluate the Fund Team: Examine the investment and sustainability expertise and experience of the fund management team. For example, does the team include ESG/sustainability specialists? This often indicates a deeper understanding of the complexities of sustainability issues.

• Don't Be Afraid to Seek Expert Advice: As FaithInvest discussed in their FCI and Smaller Organizations paper, consider working with a financial advisor, consultant, or OCIO experienced in sustainable investing. They can help navigate the complexities of the market and tailor a portfolio to meet an organization's specific faith-based values and financial objectives.

  
  

Although challenging, there are a number of tools and services that small FBAOs can leverage to help them start and advance their FCI program. By taking a proactive and diligent approach, small FBAOs can build investment portfolios that not only generate financial returns but also reflect their core faith values, ultimately helping contribute to the transition to a more sustainable and just world.

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Disclaimer

FaithInvest is an international nonprofit organisation that empowers faith groups to invest in line with their beliefs and values. FaithInvest is not authorised by the Financial Conduct Authority and does not provide financial or investment advice. Information provided on FaithInvest’s website or its other communication channels does not constitute financial or investment advice. If you wish to receive any form of financial or investment advice, please consult a qualified and independent financial advisor. You should conduct your own due diligence in relation to any investment opportunities or strategies you choose to pursue. FaithInvest does not promote any specific investments or opportunities and cannot therefore accept responsibility for any specific financial or investment decisions you make following participation on its website platform.