Forbes India 15th Anniversary Special

Religious organisations can practise what they preach when investing

Investing in corporations is not a neutral activity. It impacts people's lives

Published: Jun 2, 2014 07:02:01 AM IST
Updated: May 19, 2014 05:12:11 PM IST

Since ethics is the core business of religious organisations, it might logically be expected that their investment portfolios would not contradict those ethics. Reality has proven quite different. Much 20th century research shows a secular-sacred divide between investments and religious missions. But with the rise of corporate social responsibility it seems that things are changing. Recent global research entitled `From Stewardship to Power’, shows that religious groups, whether wealthy or not, can be a force for change in the business community. That is, if the religious are willing to socially capitalise their power as investors.

Investing in corporations is not a neutral activity. It impacts people’s lives. Whether religious organisations like it or not, their investments will have an effect on the climate, on land and water, on poverty and equality, on justice and peace, indeed on most aspects that relate to their sacred mission. However, several barriers to faith-consistent investing are keeping religious investors from practicing what they preach.

Celine Louche, Assistant Professor Audencia Nantes School of Management, France
Celine Louche, Assistant Professor Audencia Nantes School of Management, France
While religious groups’ charitable and philanthropic activities are impressive and surely very much needed, it is difficult to imagine that the religious would like to find that the money they donate is invested where it can bring harm to those same people they wish to help. Of course there is no such thing as ensuring money is made hundred percent ‘clean’. Every product or service will have its downside. Nevertheless, shying away from debating the possible negative impact of investments will certainly not help.

Another fear of religious organisations is having to give up their historically acquired freedom of not having to report on their financial actions. At least, not in detail. While firms being invested in are constantly pressured by watchdogs, activists, NGOs and government bodies to provide transparency on their environmental and social impacts, religious investors are hardly questioned. Income from grassroots or church members in the form of donations, legacies, pensions and other sources are often allocated without in-depth accountability. It is therefore not surprising to hear religious groups state that they do not wish to share information concerning assets.

Fortunately we do not have to wait to find a solution to this transparency issue. Social shareholder engagement can be done without being transparent about the size and composition of one’s portfolio. A Canadian fund (Fonds d'engagement actionnarial) allows its members to engage with companies without having to disclose information on their portfolio. This fund also enables organisations to engage even where they lack the legal or formal structure to do so on their own.

Another unfortunate and recurring thinking among religious investors is that changing their placement policy will negatively affect the return on investments. Although it is indisputable that for many struggling religious organisations a proper return on investment is vital, it seems that the argument against changing what pattern these investments take is linked to a lack of will to change rather than to facts. Already for quite some years many researchers have proven that responsible investing has similar or even higher returns than conventional stocks. Unless you want to invest in high-return areas like weapons or enjoy gambling in the maze of financial games, it is simply a matter of acknowledging that good returns on good products are good enough.

Another well-known argument stating that the financial assets of religious groups are often too small to have an impact can also be rebuked. Such logic does not take into account that impact does not only relate to financial assets but can also be derived from religious authority or leadership. Which business would want to be publically impeached by a Hindu priest or find its products boycotted by all Muslims?

Whilst many more arguments exist, the study ‘From Stewardship to Power’ by Europe-based International Interfaith Investment Group 3iG, Audencia Nantes School of Management and ESADE Institute for Social Innovation shows that it is definitely possible to manage investment in line with religious beliefs and to hit profit targets.   It reveals that religious investors have a head-start on secular responsible investors because of key characteristics related to their religious nature. The findings were based on desk research and interviews with representatives of 20 faith-based organisations from Canada, the Netherlands, the USA and the UK as well as India.

Firstly, religious teachings are available to guide investors. Whether you are Hindu, Muslim, Buddhist, Jewish or Christian, original scriptures and modern interpretations of religious leaders are available. For the Quakers, Ecumenical, Anglican, Baptist and Methodists researched, the Scriptures were used as a guide. As an Ecumenical investor mentioned, "As owners of capital we have a responsibility to put that capital to work for God's purpose, which actually is to build capacity and to reach out to marginalised and excluded people." Whilst they are no blueprints, religious guidelines or rules can be very explicit. They promote investing in development, increased equality and justice, while going as far as to support active shareholder engagement. For the Roman Catholics, the Caritas in Veritate is available, the Methodists use The Book of Discipline and the Muslims have various modern investment tools and guidelines based on Sharia Law.

Religious organisations’ grassroots networks also form great opportunities for faith-consistent investing. Imagine a Roman Catholic community in Ecuador working on a sugar plantation supplying a multinational soft-drink producer in the US. In the local church community, poor labour practices are discussed and the local priest contacts his opposite number in the US to share his frustration about the exploitation of `his´ community. The Church's global investments manager shares the findings with the soft drinks company during a shareholder meeting. The company follows up with the supplier in order to raise the labour standards. Grassroots networks not only signal issues but also provide access to large consumer communities. Another example: A Jewish ethical investment organisation that decides to tackle the malpractices of a company producing chocolate bars engages with the company as a shareholder but may also ask its members to boycott products until the firm has improved its human rights practices. What makes things particularly easy, is that all involved share the same set of beliefs. In this way, they can easily connect, align, decide and act as a group.

In addition, religious organisations have a long-term view towards investments and can uphold a level of high persistence in their shareholder engagement over a lengthy period of time. As a Roman Catholic put it, “What sometimes may have been impossible under one CEO becomes possible under another one”. Since time is needed to change the behaviour of a firm, an entire industry, or society at large, the fact that religious organisations are often characterised by an average time-span of 500 years is a strong point.

Finally, a pattern of increased inter- and intra- religious collaboration exists. All active religious shareholders embrace collaboration with peers through religious investor networks. These collaborative groups — referred to as religious investor groups —are regarded as useful as a platform for creating and pooling knowledge. They can also be a power factor that provides the scale required to influence investments’ impact.

Various religious organisations are increasingly mindful of the power they can wield as active shareholders. The four characteristics above make them powerful constituents in corporate social responsibility. Besides screening ‘sin-stocks’ – avoiding investments in, for example, pornography, tobacco or fossil fuels – and investing after benchmarking companies on their environmental, social and governance practises, religious investors are gradually increasing their social shareholder engagement as well as their impact investing practices. Investments with high positive social impact such as those in fair-trade products, affordable housing, microfinance and other mission-investments, have fewer ideological tensions for religious investors than other placement practices. Some of the religious investors researched mentioned that a growing part of their investment portfolio would be channelled to impact investing.

Clearly, religious investing is not a choice of either money or faith but rather concerns a fine balance in working towards an ideal world where money and ethics go hand in hand. While many religious organisations refrain from taking the first step towards faith-consistent investing, the religious groups that participated in this recent study demonstrate a wealth of possibilities and opportunities. Without having to convert managers, religious investors can influence business leaders towards more responsible management.  

Religion-based groups see it as their responsibility to help those in need. With the greying of their staff and the need for them to maintain their personnel and serve their grassroots, such groups increasingly rely on their investments in capital markets to pursue their activities. In varying degrees, the waning physical capabilities of church members are offset by the waxing financial means for pursuing justice, care of the environment and integrity. Ever more religious investors are aware that with a certain level of stewardship, enthusiasm and knowledge they can be powerful players in capital markets. And for some, it might be a way to regain trust from the public that they may have lost in the past.

The research practitioner report can be found at

By Katinka C. van Cranenburgh, Secretary General 3iG and Visiting Researcher ESADE Institute for Social Innovation and Celine Louche, Assistant Professor Audencia Nantes School of Management, France.

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