This morning I was on a call with Brendan O’Sullivan-Hale, the Canon to the Ordinary for Administration and Evangelism at the Episcopal Diocese of Indianapolis.
He pointed me to this General Convention document that starts with this great quote from Presiding Bishop Michael Curry:
The wealth of the church…must be at the disposal of God and be used for godly purpose.
Bishop Curry then continues:
A new learning for me was that that’s not just about how the church spends its money, but it’s also about how the church invests its money. …The reality is, you can actually accomplish social good in financially responsible ways. You just have to decide that you want to do it.
The Rt. Rev. Michael B. Curry, Bishop of the Diocese of North Carolina, discussing the
decision of the Diocese to invest in Self-Help Credit Union, ENS, June 29, 2011
The State of Faith-based Investing
From this report, you can learn a lot about the state of “Faith-based Investing”. (FBI as some funders call it 🙂
The terms they define, the way they identify the churches they profiled, there is a significant amount of helpful context in this document.
I will attempt to lift up a few pieces.
Most of all, I wanted the portion of this document that starts on page 23 to make it’s way to being more accessible and available out in the world.
Investing as Doing Theology
A movement in the Church
The charge given to the Task Force suggests General Convention sensed a movement in the
Church for faithful investing. Such a perception may be correct. At least fifteen investors are
moving along a path to engage in investing based in the Church’s faith. Almost all these
institutions follow approaches that encompass all three of the “elements” of responsible
investing identified in Resolution A061: “[1] applying ethical guidelines in investment selection
and management, [2] shareholder activism, and [3] investing for responsible social and
environmental outcomes as well as financial return.”
These stories are new
Ten or even five years ago, this report could not have been written. Almost all the institutions
discussed here developed their faithful investing programs in the last decade. Most have
reached significant implementation just in the last two or three years.
How many more stories are there? How did we find these stories?
We do not know how many Church institutional investors have been applying their faith in their
investing. As far as we know, no Church body assembles and makes available information on
investing by dioceses and parishes. Here we report on investors we found that had stories we
thought could and should be shared.
How much of their assets do these investors commit?
All the institutions whose stories are set out below commit substantial assets to faithful
investing, but the dioceses have acted differently from the congregations and parishes. All but
one of the parishes and congregations have committed all their investment assets to
responsible investing and substantially implemented their commitment. In contrast, only one
diocese, the Diocese of New York, has committed all its investment assets, including those of its
Diocesan Investment Trust, to faithful, responsible investing and fully implemented the
commitment. Another, the Episcopal Church in Vermont, has adopted affirmative principles for
all its assets and is working on implementing them. The Diocese of California invests all its
assets with DFMS. The Diocese of Michigan invests all its assets passively, using only negative
screens, which, however, in fact leads to some affirmative responsible investing outcomes. The
other dioceses have committed a fraction but not all of their assets to responsible investing.
Who guides investment decisions?
All these Church institutions are guided and led by their clergy and their volunteer vestry, board
and investment committee members. They receive investment services from outside
investment advisors and managers, specialized consultants, and Outsourced Chief Investment
Officers (OCIOs). An OCIO usually is an outside organization to which an asset-owner delegates
management responsibility. Asset-owners define investment objectives and oversee the OCIO’s
performance, while the OCIO commonly helps choose the means to achieve objectives and
executes the program. The amount of discretion delegated to an OCIO can vary.
Community Investing, Impact Investing and the SDGs
The three “elements” named by Convention for us to examine are set out above. The third is
investing for responsible social and environmental outcomes as well as financial return. Two
terms commonly used for this sort of investing are “community investing” and “impact
investing.” Community investing involves investing at community scale, often through
community development financial institutions. Impact investing involves larger scale and larger
amounts, often through private capital arrangements with pools of millions of dollars.
What about ESG?
As their stories demonstrate, almost all the parishes and dioceses discussed here have adopted
responsible investing and applying analysis of environmental, social and governance (ESG)
factors for themselves, although not all in the same way. Among the parishes, especially, the
size of endowments and the resources available for managing them vary considerably. The
range of investments chosen runs from products available widely at retail, such as mutual funds
and Exchange Traded Funds (ETFs), to private capital. (ETFs are funds that allow investors to
trade in mutual funds in the market, rather than having to deal always with the mutual fund
sponsor/manager.) All these investments can be used for responsible investing using ESG.
“ESG” has become something of a buzz word, but the term has genuine content. There are very
good reasons, financial and nonfinancial, to consider environmental, social and governance
factors in investing. Using ESG exposes risks and opportunities with financial and other
implications that traditional financial analysis can miss. As responsible investing has grown in
scale and importance, substantial numbers of investors and investment practitioners have
committed to applying ESG, because they believe this is the wise and prudent course for
stewards of institutional assets. All ESG investors do not end up with the same portfolio or
results. They apply these factors along with financial analysis and judge success not just on
financial return but also on ESG outcomes. See Principles for Responsible Investment, below.
Moreover, increasing awareness in the last decades that global warming, if unchecked, could
lead to devastating disruptions to human life has helped convert more participants in the
capital markets, who traditionally have focused solely on financial factors, to begin to use ESG.
ESG is not universally received wisdom, but fear of climate change has drawn ESG into the
capitalist mainstream.
In the September 27, 2020, New York Times, Allison Herren Lee, a
Commissioner of the Securities and Exchange Commissioner, wrote as follows:
One prominent outdated notion is that investments made on the basis of environmental,
social and governance risks — known in the industry as E.S.G. — are merely about one’s
policy preferences or moral choices. That might have been closer to reality over a decade
ago, but as E.S.G. investing has grown and matured, so too has an understanding of its
value.
Today, lenders, credit rating agencies, analysts, stock exchanges and asset managers
representing trillions in investments use E.S.G. as a significant driver in capital allocation,
pricing and value assessments. A major study recently found that a large number of
powerful institutional investors rank “climate risk disclosures” as being just as important
in their decision-making processes as traditional financial statements and other metrics
for an investment’s performance — like return on equity or earnings volatility.
Researchers at the Bank of International Settlements have called climate change “a
colossal and potentially irreversible risk of staggering complexity.” It is a systemic risk that
will threaten global financial stability and spare no corner of the earth: Health, food
security and water supplies across the globe will be disrupted.
https://www.nytimes.com/2020/09/27/opinion/climate-change-us-companies.html
Principles for Responsible Investment
The Principles for Responsible Investment (PRI) are built on ESG. In response to a call by the UN
General Secretary, institutional investors launched PRI in 2006. PRI describes itself as “the
world’s leading proponent of responsible investment,” with over 3,000 signatories, of which
over 500 are asset owners that hold total assets exceeding $100 trillion. PRI is a prime example
of what the industry calls a “stewardship code,” or voluntary compact to promote responsible
investing. Observers question how effectively such codes of conduct, especially those with
many signatories, can guide behavior. PRI and other such codes certainly are aspirational.
Signatories to the PRI commit to the six Principles for Responsible Investment, including to
incorporate ESG into their investment analysis, decision-making and policies and practices, and
to promote ESG and the Principles. Signatories also are required to complete a detailed report
annually on their application of the Principles and ESG. Some signatories find this requirement
onerous, but observers see it as a useful means to make the Principles work.
Practical Church Guidance
A number of Episcopal Church institutional investors we interviewed told us that they had to
work out their own approaches to affirmative responsible investing without practical guidance
from any denominational body or authority. They looked for but could not find information
from the denomination on the “nuts and bolts” of such investing. Some, but not all, of these
were less well-resourced investors who have not yet developed stories we could tell.
On the other hand, one diocese whose story we do tell below made personal contact, by some
persistence, with DFMS staff and CCSR members. Over some weeks, this diocese directly
sought, and received, advice and suggestions on how to do affirmative as well as negative
responsible investing. The diocese’s team was able to get answers to their questions. Perhaps
we should expect that dioceses and parishes generally will persevere until they get help, but
the larger Church could make access to such information and counsel more readily available.
Recommendations
We recommend that General Convention affirm to all institutional investors in the
Church the value and importance of faithful investing (defined as investing institutional
assets consistently with the Church’s faith and teachings and the Church’s mission) and of
responsible investing (defined as addressing ethical concerns for social, environmental and
governance matters (ESG), including climate change and human rights).
We further recommend that Convention recommend that all institutional investors in the
Episcopal Church consider adopting faithful investing and responsible investing for their
investment programs and portfolios and managing their investment assets using the
following elements of responsible investing: applying ethical and theological guidelines,
including ESG, in investment selection and management; shareholder engagement,
including voting proxies; and investing for responsible social and environmental outcomes
as well as for financial return.
The document proceeds to share 15 stories.
