New FaithInvest study shows smaller faith groups face significant challenges when seeking to invest
Recent years have seen a growing awareness among faith groups of the need to ensure their investments reflect their beliefs and values, rather than inadvertently funding activities that conflict with those values.
However, doing so is more complex and challenging than it might appear initially, and smaller faith groups – those with under $100m in assets under management, and often well below that amount – face particular obstacles.
Now FaithInvest, a global non-profit that supports faiths to invest in line with their values, has released a white paper exploring these challenges – and offering some solutions.
The paper, Faith-Consistent Investing and Smaller Organisations, explains that most of the challenges arise when the very limited resources of small plans are stretched to meet the significant requirements for creating unique, customised investment programmes that reflect a faith’s values, and when trade-offs must be made between investment efficiency and customisation for faith-driven priorities.
Mathew Jensen, FaithInvest's Director of Investment Solutions, said: "Together, faith groups hold billions of dollars of investments in the global stock markets, and growing numbers of faith groups are looking at whether those investments are truly aligned with their values. But, as our paper outlines, there are very significant challenges facing smaller groups in particular.'
Mike Even, a Co-founder of FaithInvest and lead writer on the paper, which is produced by FaithInvest's Investment Solutions Team, adds: "Operationalising faith values in an investment programme requires adding a new level of complexity to the already demanding job of managing risk and return. But many faith assets are not held in large, centralised investment pools, instead they are often relatively small, with limited resources, and this presents challenges."
In the paper, FaithInvest outlines six of these challenges:
Any faith-consistent investing (FCI) effort is in addition to the already significant responsibilities of overseeing an investment programme. Each step – from asset allocation to manager selection to monitoring and reporting – now takes on the additional nuances of FCI.
The nature of FCI means investment decisions need to be tailored to each faith’s specific values; often, individual groups within a single faith may want their own, differentiated emphasis or prioritisation. “Off-the-shelf” solutions – usually developed for secular clients – may not meet the specific FCI needs.
Smaller plans often invest through commingled vehicles; such vehicles are often the only cost effective and/or available option for small investors. A commingled vehicle (eg, mutual fund) usually allows no tailoring – it is, by design, “one size fits many” and therefore may not provide a vehicle for expressing specific faith-values.
Modern investment programmes are “multi-asset-class", and a full-scale FCI programme should address and inform each asset class (group of investments that have similar characteristics) held – requiring more work, more decisions, and more expertise.
FCI usually implies many non-investment activities such as shareholder activism or engagement; active proxy voting, participation in coordinated efforts to influence both company managements and regulators, etc. Once again, this is a set of activities requiring specialised resources and a very faith-specific emphasis.
Supporting “the faithful”: At FaithInvest we think of the faithful – lay members of faith communities – as the ultimate potential amplification of FCI. If all the faithful invested their assets in line with their faith values, the impact could be very significant, given that 84% of the world's population say they belong to a faith community. But to achieve this requires education, support, and special purpose investment vehicles, a big ask for even a large organisation and probably impossible for smaller groups.
Fortunately, there are several kinds of organisations and providers to support faith organisations with their investing. The paper looks at three options: outsourced chief investment officer (OCIO) platforms; consultants; and networks of like-minded faith affinity groups. Each option has its own unique service offering, which faith-based asset owners must weigh, depending on their priorities and means.
To provide some real world reference points, the paper provides several examples:
A single-faith-focused investment management and OCIO provider (Methodist and multi-denominational)
A single-faith network organisation (Jewish)
A faith-based investment management and OCIO provider (multi-faith, Catholic Social Teaching based)
A single-faith Impact Investing support network (Catholic)
A non-profit-focused OCIO services provider (multi-faith)
While the process of evaluating and selecting different solutions can be daunting for smaller groups, it is vital for faith groups seeking to implement FCI. FaithInvest can support such efforts through its not-for-profit network of religious groups and faith-based institutional investors.