Treasures in Heaven, Portfolios on Earth

When Christian investors focus solely on avoiding unethical causes, they miss a chance to build up good corporations and ministries.

Author’s note: I am so privileged to have a wonderfully diverse group of friends and readers for this newsletter. Almost everything I write here will be crafted, to the best of my ability, with that diverse readership in mind. In my professional career, however, I work at a values-based investment firm that serves a number of Christian faith-based clients. The below piece is written primarily for Christian investors or those interested in ESG/Values-Driven investment trends. For my other friends and readers who might not be interested in this content, know that I am very grateful for you. Most of my newsletters will continue to focus on purpose and leadership generally. As it is also intended to periodically comment on investment trends and as I am personally interested in faith-aligned investing, I thought this appropriate to share. It originally appeared this week in Christianity Today.

In 1971, the Episcopal Church ignited modern “values investing” when it challenged General Motors’ policies in apartheid South Africa. Holding a meager 0.004 percent of shares, the church introduced a board resolution (alongside Black pastor and GM board member Leon Sullivan) that sparked a movement and changed corporate America’s approach to apartheid.

Those Christian activist investors were building on a long legacy of faith-aligned financial management, stretching from Jewish law to John Wesley’s admonitions against investing in alcohol and tobacco. But over the past 50 years, the church’s approach to values-aligned investing has stagnated even as the mainstream world has fully embraced the concept.

In 2020, there was approximately $106 trillion in managed assets around the world, and at least $35 trillion of that was in “ESG” mandates—those with some explicit focus on environmental, social, or governance concerns. Most major investment and wealth managers now have clear ESG policies and capabilities with defined agendas, sometimes under alternative monikers like “responsible” or “ethical” investing or corporate social responsibility (CSR).

Asset management firms like Blackrock, State Street, and Vanguard—which collectively own almost 20 percent of the S&P 500—regularly push companies to adopt environmental or social policies aligned with their agendas.

The sovereign wealth funds of countries like New Zealand, Norway, China, and Saudi Arabia shape companies and policies all over the world. And huge US pension plans like CalSTRS and the New York State Common Retirement Fund often enforce new policies on asset managers and companies alike related to diversity, environmental impact, and social or cultural change.

Individuals like you and me select ETFs and mutual funds that reflect their cultural, social, or political preferences. The movement has become so dominant and is shaping the world in such dramatic ways that pushback is starting to emerge from politicians, businesses, and even regulators.

In what Tim Smith, a director at investment management firm Boston Trust Walden, called “a watershed year,” 2021 was one of the biggest years for ESG ever. Professional services firm PWC refers to modern capitalism as an “ESG revolution.”

In Barron’s, Georg Kell and Andreas Rasche write:

Sustainability and environmental, social, and governance investing used to be the buzzwords of activists. Today, c-suite executives and boards of corporations and financial firms are struggling to come to grips with these terms and the issues around ESG. Firms have an inkling that change in the investment world is afoot, but many have not yet realized that the forces driving ESG will soon force fundamental changes to their business.

Christians may agree with some tenets of ESG. But very little effort has been made to develop a uniquely faith-driven approach to investing.

Estimates indicate, for example, that while Christian individuals or institutions likely fund or control more than $30 trillion in investments (through 401(k)s, individual shareholdings, insurance general accounts, public pensions, foundations, and other sources), only around $260 billion is currently deployed in explicitly faith-aligned strategies, and that is principally through basic “negative screens,” which eliminate offensive products and services from portfolios.

In the rest of their investments, Christians tend to delegate the influence of their shares to mainstream firms that may or may not share their values.

The Christian faith has, at its best, always been more about what it is for than what it is against. And Christians have an opportunity to serve others through their investment dollars while shaping companies and culture in a way that reflects the good news of the gospel.

But how? There are a multitude of potential frameworks—each of which is incomplete in its own way. But I’d propose a very simple framework for Christian individuals and institutions who want to explore the alignment of their investing with their faith.

First, focus on positive screening.

Rather than screening out the 10 percent of the market we find objectionable, what would happen if we screened for the 10 percent of the market we think is functioning especially well?

Funneling capital to the best leaders and the most impactful companies can give them the financial support and partnership to grow and expand their impact. This is quite common in mainstream ESG—for example, investing in funds focused on renewable energy or affordable healthcare.

“There’s a lot of overlap between ESG and faith-based investing” says Julie Tanner, managing director of socially responsible investing at Christian Brothers Investment Services.

But there are also faith-aligned areas of focus that the broader market likely undervalues. Embracing positive screening in each of these areas could transform markets. In his time as chief investment officer of Christian Super, Tim Macready focused on “creation care, human flourishing, and redemptive investing.”

Alternatively, simply investing in Christian or values-aligned leaders who are constructing cultures that promote human flourishing and love of neighbor can help them to build successful enterprises that also witness to the world.

For example, chaplaincy (including multifaith chaplaincy) is a revolutionary tool for organizations that increases productivity, decreases turnover and stress, and positively impacts culture. Yet it is used by only a small percentage of companies. Positively screening for those companies could encourage the practice and generate positive performance for shareholders.

Importantly, positive screening itself can be done in both public and private companies through ETFs, mutual funds, private funds, and other instruments.

Second, pay attention to opportunities for engagement and activism.

Becoming a shareholder—a part owner—of a company provides a real opportunity for engagement.

For example, BlackRock’s team of ESG professionals determine corporate priorities for the year and engage companies through letters and proxy voting that push them to adopt the priorities they want. Some faith-motivated firms deploy a similar approach, engaging the companies they own on topics like affordable care and drug pricing.

But the opportunities for using capital to voice priorities to companies are ample where those pools of capital become large enough to catch the attention of boards and CEOs.

Christians can send shareholder letters to companies or use their shares to vote on important company agendas. Better, they can entrust this to asset or wealth managers who share their values and can aggregate capital to put forward proposals to companies at a much larger scale.

At its most assertive, this engagement can escalate to activism. This involves an investor moving beyond expressing his or her opinions via proxy voting, letters, or shareholder calls and into the concentrated accumulation of shares or votes to take board seats and forcefully influence the direction of a company.

Engine No. 1’s effective takeover of Exxon Mobil is just one example in a long string of minority investors accumulating strong positions or the support of other shareholders to more aggressively and rapidly transform companies.

Firms like Elliott Management deploy this for primarily economic ends (as opposed to Engine No. 1’s social and economic focus); but there’s no reason values-led investors couldn’t take activist positions in firms to reshape them in their own positive ways.

The challenge here may be to engage in activism without acrimony and to assure that our actions are oriented toward the good of the people those companies serve. Thoughtful active investors taking concentrated positions in companies to rally for explicitly faith-aligned ends could more deeply shape individual companies while simultaneously sending a message to the broader marketplace.

Third, use private markets to shape culture.

Investing in private companies or projects can provide potentially even more opportunities to fundamentally and positively influence company culture.

Venture investors come alongside entrepreneurs early in the life of their companies, helping to shape them from birth. Private equity (PE) investors will often buy a majority stake in a company, with the opportunity to install or partner with leadership teams focused on human flourishing and love of neighbor alongside financial success. And real estate investors can reshape developments—from multifamily housing to retail—in ways that reflect the values of faith.

Jimmy Wright and Launch Capital, for example, focus on building multifamily communities for immigrants and refugees, motivated both by “serving the refugee community and being an advocate for them” and by the idea that immigrants make great tenants, which provides more stable returns to shareholders. And tech-savvy companies like Abide have brought faith to the meditation marketplace.

A broader universe of faith-driven private markets could shape thousands of companies or projects and benefit millions of people in a world in which private capital is now outpacing public markets as a source of growth.

Reams of research indicate that good cultures are the greatest competitive advantage in business, and faith-aligned cultures should both help people and lead to commercial success. New and innovative offerings may even make these investments increasingly available to average investors.

Finally, opportunistically pursue concessionary impact.

There are instances where investors may choose to place mission over material success using something we call “concessionary investing.” While all the approaches I’ve described so far can potentially earn market returns (matching those of non-faith-aligned strategies), concessionary investments intentionally place mission over financial return, embracing a higher-risk or lower-return profile in pursuit of positive social impact.

These types of projects may include venture or PE investing to develop regions (in parts of Africa or Southeast Asia, for example) where currency risk or political risk are too great for mainstream investment. It might also include projects that yield low returns but achieve great social change, like constructing health clinics, producing movies, or funding charter school bonds.

These investments may be incredibly worthy and deeply aligned with the tenets of faith but simply not oriented toward generating high returns at a reasonable risk. What’s important here is to make sure investors are aware of the tradeoff and comfortably operating in the environment between charity and conventional capital deployment.

Where do we go from here?

This framework is, of course, only half the story. The above approaches are tools to be utilized, but we must also determine to what end. How can we shape a company or a real estate development to encourage love of neighbor and human flourishing? Where should we withdraw (perhaps through negative screening) and where should we commit but actively engage? What should spiritual integration look like in a pluralistic world where all should feel welcome?

These are important questions, and the answers will likely be tailored to each of the specific approaches mentioned above. In the mainstream world, each investor and asset manager grapples with a version of them, as do the regulatory authorities and governments. While the solutions almost certainly reside at least partially in the consciences of individuals and institutions making these decisions, I believe a series of at least somewhat common principles can be articulated among the majority of Christian investors.

This begins with leaning into positive engagement by promoting faith-aligned approaches that lead to human flourishing in companies—great maternity and paternity leave policies, chaplaincy, employee resource groups, etc.—and by pushing companies to consider the social impact of the goods and services they produce.

It will involve identifying and supporting faith- or values-aligned leaders of these companies. Approaches will be imperfect at first and grow in sophistication over time, as they have in conventional ESG, and the opportunity for cultural transformation focused on loving God and loving others will be almost limitless.

This is not an admonition but an opportunity. Each day we have the chance to engage the world—creatively and constructively—as we steward the capital God has trusted us to deploy.

John Coleman is a Managing Partner at Sovereign’s Capital, a values-based investment firm, the author of several books, most recently the HBR Guide to Crafting Your Purpose, and a host of Faith Driven Investor podcast.