Amplifying The Voices Of The Founding Fathers Of Sustainable Investing

The conventional wisdom in some parts of the US is that sustainable investing mixes business with politics to the detriment of shareholders. That conventional wisdom is wrong: sustainable investing was founded by faith-based investors to reflect their values and mainstreamed when incorporating material sustainability factors into investment decision-making was shown to enhance long-term value creation. Faith, or belief in God, is distinct from politics, making and enforcing collective decisions in society. Faith and politics can become intertwined when individuals follow religious guidance, such as to care for people in need, in the public sphere, when the religious views of voters affect political leaders and lawmakers, or when people attempt to turn religious beliefs into laws that affect everyone.

Given that 90% of Republicans and 76% of Democrats believe in God, it is reasonable to ask the question of how faith-based investors view the relationship between value and values when it comes to investing, as well as the guidelines set by government on what choices should be available to them. The voices that have been noticeably lacking in the current controversy over sustainable investing are those of faith-based investors, which these data suggest are most of them. This article is the first in a series that seeks to amplify the faith-based perspective on sustainable investing.

From The Founding Fathers To the Founding Sisters and Brothers

There are historical parallels between the current state of sustainable investing and the political fervor in the United States between the end of the Constitutional Convention in September 1787 and the ratification of the US Constitution in June 1788.

Sustainable investing—a range of practices through which investors target financial returns while promoting long-term social or environmental value—is at an inflection point, just as the first 13 states of the United States were on the eve of creating the federal government under the Constitution.

Once the domain of nuns and other faith-based investors, who wanted their portfolios to reflect their values, sustainable investing became mainstream as trillion-dollar financial giants like JPMorgan and billionaire capitalists like Paul Tudor Jones became adherents, building a range of sustainable investing products and propelling sustainable investing assets under management to $37.8 trillion, according to a Bloomberg study. These sustainable assets under management are not monolithic: they span from senior debt to equity in the capital structure, return expectations range from concessionary to market rate, and sustainable investing strategies run the gamut from exclusions to strategic engagement.

Sustainable Investing Strategies

On the way to becoming standard market practice, integrating sustainability into investment decision-making is currently facing pushback, from new Florida regulation preventing state fund managers from considering ESG factors when investing state funds to a new Texas law prohibiting the state from doing business with financial institutions that the state deems are boycotting energy companies. This pushback conflates exclusions with ESG integration. It also reflects what Oxford Professor Bob Eccles and University of Pennsylvania Professor Jill Fisch describe as the heart of the current controversy over sustainable investing: “The real problem is that values are obviously in the eye of the beholder, and what is value investing for one person may be perceived as values-based investing by another.” This harkens back to both genuine differences in values among the original 13 states and the reluctance of some of those states to cede aspects of their independence under the Articles of Confederation to the federal government.

Within explicitly values-based investments, there are platforms like Inspire, the world’s largest faith-based exchange traded fund (ETF) provider. Furthermore, other values-based investment products focus on issues ranging from veganism, like the US Vegan Climate ETF (VEGNVEGN
), to alignment with Republican political beliefs, like the Point Bridge America First ETF (MAGAMAGA
). Since in such explicitly values-based platforms, investors should be free to invest their money as they wish, even at potentially lower risk-adjusted returns. These explicitly values-aligned funds have limited assets under management.

The path to ratifying the US Constitution, the world’s longest-surviving written charter of government, was not easy. During the debate over the Constitution, James Madison, Alexander Hamilton, and John Jay’s eloquent defense of the Constitution in a series of 85 articles called the Federalist Papers played a critical role in helping the public understand the Constitution’s many strengths.

Large US investors have spoken and written much to explain that sustainable investing is simply a strategy to optimize risk-adjusted returns, from State StreetSTT
CEO Ron O’ Hanley explaining that climate investing is a “matters of value, not values” to California Public Employees’ Retirement System CEO Marcie Frost explaining that applying a lens of ESG is not “an endorsement of political position or ideology.” In addition, Jefferies Global Head of ESG Strategy Aniket Shah perceptively noted the considerable areas of bipartisan consensus in sustainable investing: “the energy transition, including carbon capture and storage, nuclear, and hydrogen; adaptation and resilience; the importance of financial materiality in investment decision-making; and increased attention to the working class.”

While such explanations from experts in investing and finance are important, the media must also elevate the voices of faith-based investors who were the pioneering sustainable investors. Indeed, the founding fathers, mothers, sisters, and brothers in the faith-based investing community have a vital role to play in explaining and defending sustainable investing.

Not only do these founding faith-based investors have a perspective on whether residents of the states that introduced anti-ESG investing legislation—Florida, Idaho, Indiana, Kentucky, Louisiana, Minnesota, Missouri, Oklahoma, Texas, Utah, and West Virginia—should have the religious freedom to invest their retirement savings in line with faith-based values and principles, but they also have a unique perspective to add on each of the types of sustainability investing given their longstanding experience using and pioneering these approaches.

Just like the Federalist Papers paved the way for federal authority on many matters of national importance while also respecting state’s rights, the Faith-Based Federalist Papers could safeguard the rights of institutions to offer and invest in sustainable products or even the subset of values-based products, without fear of state sanctions, without compelling any state agency to offer or invest in such products.

Calling For An Interfaith Dialogue on Sustainable Investing

The next article in this series on the faith-based perspective on sustainable investing will focus on the investor-corporate dialogue, which is the most effective form of sustainable investing in terms of making an impact. Founding Interfaith Center on Corporate Responsibility (ICCR) member Paul Neuhauser filed the first individual shareholder resolution on behalf of the Episcopal Church at General MotorsGM
(GM) in March 1971 to request that GM withdraw its business from Apartheid-era South Africa. This launched first the shareholder advocacy movement and then the mainstreaming of shareholder engagement, with large asset stewardship teams at the largest investment management firms and a record of 941 shareholder proposal submissions during the 2022 proxy season. It also launched ICCR, an interfaith organization focused on strategic engagement with over 300 members with assets of over $100 billion.

Subsequent articles in this series will focus on the faith-based perspective on sustainable investing tools ranging from negative screens to ESG integration.