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Using ESG criteria for faith-consistent investing: clarity is the key!

Working recently with a faith-based asset owner (FBAO) on their investment policy and guidelines (IP&G) – we learned that they had received feedback from their asset managers that the following wording on the use of ESG was somewhat ambiguous and unactionable:

The trustees expect the investment managers to apply Environmental, Social and Governance (ESG) criteria when selecting investments paying particular attention to our guiding principles...

Asking: Who’s scores? What criteria? How do those particular Guiding Principles map to ESG? And more. They then asked FaithInvest to draw from our Good Intentions research, in which we looked at dozens of examples, and share what the best faith IP&Gs say about ESG.

We found that many FBAOs reference ESG in their IP&Gs, quite often along the lines of the above language. We selected six of the more developed and higher scoring IP&Gs to share as exemplars. They’re included in the document shown in full below, anonymizing those not publicly available, and identifying the two that are.

Summary observations:

  • The language FBAOs use in these IP&Gs varies from basic ESG considerations to ESG principles informing every investment decision with measurement on the impacts. The last one, for example, sets minimum ratings for select categories from the ESG scoring provider they designate, while the second sets no criteria but asks their managers to report on how they use ESG.

  • ESG risks are sometimes of greater concern than ESG principles, as ESG risk is focused on financial risks first (from an ESG lens) and ethical/values principles second.

  • Some FBAOs delegate the job of ESG screening to an ethics committee which is separate from an investment committee or board.

For the particular FBAO mentioned earlier, given considerations like their size, resources and stage of FCI, we thought the language from ‘Faith Group Three’ in the attached PDF to be particularly helpful to guide our further work with them.

What approach best suits your faith organisation? If your group is grappling with this, we’re here to help! Drop us a line at

IP&G ESG Language: Examples

Wespath Benefits & Investments:

Sustainable Investment Strategies (SIS) Program: UMCBB seeks to make a conscious effort to consider the values of The United Methodist Church expressed in the Social Principles, as directed in The Book of Discipline 2016. UMCBB shall execute sustainable investment practices, by ensuring that its asset managers consider environmental, social, and governance (ESG) factors when evaluating the risks and opportunities for investments across asset classes. UMCBB demonstrates its commitment to sustainable investment through: ethical exclusions, active ownership, strategic partnerships, positive impact investments and asset manager ESG integration. When UMCBB considers changes to its sustainable investment program, it will seek guidance from the Wespath Benefits and Investments UMC Principles Committee and Fiduciary Committee similar to such guidance provided to the Board as described in Sections I. B.3. and B.6. of this Investment Policy.

Active Ownership: UMCBB shall pursue strategies to actively influence company performance and public policy relating to material ESG issues and manage excessive sustainability risk for all investments held in separately managed accounts and co-mingled passive investment funds.

Public Policy Engagement shall focus on how macro-level ESG issues relate to the structure, function, and governance of markets as a whole and how they can undermine investors’ long-term financial interests. Engagement may include supporting regulatory interventions if, in the judgment of UMCBB, such action shall improve the sustainability of its investment funds.

Management of Excessive Sustainability Risk: ESG issues can present an excessive degree of sustainability risk to UMCBB’s funds due to their fiduciary implications and their importance to The United Methodist Church. When UMCBB identifies such issues, it shall develop a guideline regarding its company-specific engagement priorities. This guideline may also lead to the exclusion of certain companies until the risk of holding securities in the affected companies has been resolved, or if UMCBB believes that it cannot reasonably mitigate the sustainability risk. The Board must approve all guidelines relating to the management of excessive sustainability risk.

UMCBB shall develop and maintain proxy-voting guidelines that promote well-run companies with strong, accountable leadership, remuneration that incentivizes responsible behavior and the integration of ESG issues in business practices. The Board must approve proxy voting guidelines annually.

Manager ESG Integration Due Diligence: UMCBB shall endeavor to ensure that external asset managers demonstrate a commitment to integrating the consideration of ESG factors when assessing investment risks and opportunities for UMCBB investments. UMCBB’s requests for proposals shall include questions facilitating an assessment of prospective external asset managers’ skill in evaluating the risks and opportunities related to ESG considerations. Ongoing asset manager due diligence shall require an annual response by all of UMCBB’s external asset managers explaining their consideration of ESG issues when assessing investment risks and opportunities. UMCBB shall formally assess each external asset manager’s commitment and success in assessing ESG factors when making investment decisions.

Evangelical Church in Germany (EKD):

As institutional investors, we have a duty to act in the best long-term interests of our beneficiaries. In this fiduciary role, we believe that environmental, social, and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes, and through time). We also recognize that applying these Principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, we commit to the following six principles:

  • We will incorporate ESG issues into investment analysis and decision-making processes.

  • We will be active owners and incorporate ESG issues into our ownership policies and practices.

  • We will seek appropriate disclosure on ESG issues by the entities in which we invest.

  • We will promote acceptance and implementation of the PRI within the investment industry.

  • We will work together to enhance our effectiveness in implementing the PRI.

  • We will each report on our activities and progress towards implementing the PRI.

Key aspects regarding the selection of and cooperation with prospective companies are:

  • Are social and ecological sustainability criteria (ESG criteria) included in the incentive systems and remuneration policies?

  • Is information available regarding the company’s effective tax rate and tax expenditure? Do internationally active companies provide an overview of their regional distribution – especially regarding off-shore financial centres?

  • Which percentage of the total extension of credit is granted according to ESG criteria? Which percentage of the assets under management are administered according to ESG criteria?

Are certain business activities excluded for ESG reasons? Are there examples for

such nonactivity due to these reasons?

Faith-Group 1:

ESG Integration

ESG Integration refers to the approach of seeking to direct the Fund’s assets more heavily to companies, instruments and investments that operate in accordance with the positive principles outlined above.

This orients the portfolio more towards those companies that are successfully promoting human flourishing and creation care by demonstrating sound ethical practices, and strong environmental, social, and financial stewardship.

Accordingly, the Fund:

  • Seeks to appoint and monitor managers that take Environmental, Social and Governance (ESG) factors into account in the management of their portfolio.

  • Ensures that any internally managed portfolios appropriately consider ESG factors.

  • Identifies, in considering negative screening as outlined above, areas of company behaviour and impact that are considered positively.

Oversight of manager appointments and internal portfolios is delegated to the Investment Committee. Responsibility for developing and implementing the Fund’s approach to ESG integration by fund managers across the portfolio is delegated to management.

The Fund will maintain an ESG Integration Policy outlining how ESG issues are considered in manager appointment and monitoring, as well as in internal portfolios. Oversight of the policy and strategy is delegated to the Ethics Committee.

Faith-Group 2:

The implementation of Responsible Investment involves: altering stock selection processes to incorporate ESG criteria, and conducting engagement with companies and public policy makers to lead to improvements in ESG practice or performance. The primary reason for the adoption of Responsible Investment practices for some investors is the belief that they will lead to better long-term risk adjusted investment returns. The PRI also believes that RI will better align investors with the broader objectives of society. Several [Faith-Group 2] members explicitly identify responsible investment considerations in their Investment Policies.

Environmental, Social and Governance Criteria in Stock Selection and Portfolio Management: PRI Principle One asks managers to incorporate environmental, social and governance criteria into stock selection and portfolio management. [Faith-Group 2] members may wish to ask:

  1. How are environmental, social and governance criteria included in stock selection processes?

  2. How does this actively influence portfolios?

  3. Does the manager monitor and report on the ESG characteristics of their portfolios compared to benchmarks/comparators?

  4. Does the manager commission an annual carbon-footprint of the portfolio? If so, how does this compare to benchmark/comparator?

  5. Has the manager de-selected stock on ESG grounds?

Faith-Group 3:

The PRI is the world’s leading framework for responsible investment. It fosters understanding of the investment implications of environmental, social and governance (ESG) factors and encourages its signatories to incorporate these factors into their investment and ownership decisions. The PRI promotes the long-term interests of its signatories, the financial markets, and the economies within which they operate, and, ultimately, the environment and society as a whole.

In 2019 the PRI together with the CFA Institute published a report titled, ESG Integration and [Faith-Group 3] Finance: Complementary Investment Approaches. The report shows the alignment between the characteristics of [Faith-Group 3] finance and ESG investing and identifies challenges for ESG integration.

With a global signatory base (as of 28th January 2021) of over 3,500 asset owners, investment managers and services providers a majority of the world’s professionally managed investments are represented in the PRI. It establishes six voluntary and aspirational investment Principles that offer a range of approaches for signatories to incorporate ESG issues into their investment practice. By committing to the PRI and embracing ESG, signatories are helping to develop a more sustainable global financial system.

The six Principles are: Principle 1:

  1. We will incorporate ESG issues into investment analysis and decision-making processes.

  2. We will be active owners and incorporate ESG issues into our ownership policies and practices.

  3. We will seek appropriate disclosure on ESG issues by the entities in which we invest.

  4. We will promote acceptance and implementation of the Principles within the investment industry. Principle 5:

  5. We will work together to enhance our effectiveness in implementing the Principles.

  6. We will each report on our activities and progress towards implementing the Principles.

Faith-Group 4:

It is necessary that the IC seek a methodology that is in-line with the values of the Social Doctrine of the [Faith], [which] allows for the recognition of [the] best-in-class assets, investments respecting principles of prudence and profitability and also has a positive and demonstrable impact regarding equality and climate change while respecting the following ratings.

ESG Risk Rating:

  • Environmental Score

  • Social Score

  • Governance Score

  • Significant controversies score

  • Carbon Risk Score.


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