By Mark Regier, Vice President of Stewardship Investing for Praxis Mutual Funds and Everence Financial
(See the Special Feature at the end of this article: A Cloud of Witnesses from different religions on Faith and Investing)
It was once said, too often repeated, and widely misunderstood that “ESG is the next evolution of SRI.”
While, without a doubt, the emergence of ESG (Environmental, Social and Governance) as an increasingly influential force—particularly among mainstream investors—is one of the most important trends our industry has probably ever seen. However, to assert that the growing acceptance of the financial materiality of various traditional SRI (Socially Responsible Investing) concerns somehow supplants the primarily values-driven approach that has been the foundation of social investment for decades does a disservice to the potential both SRI and ESG philosophies have to offer.
ESG is indeed an important evolution—but an evolution of mainstream investing, not SRI. While exploring issues (climate change, human trafficking, board diversity) and employing practices (corporate engagement, intentional proxy voting) quite familiar to traditional socially responsible investors, ESG’s primary rule of measure remains that of historic Wall Street—“show me the money!” The ability to demonstrate that these factors are material to financial performance lies at the very heart of the philosophy. What is “just”, what is “right”, what “should be” is not really the issue. And while for some this philosophy may fail the test of social responsibility for these reasons, they are missing the importance of ESG’s potential.
ESG is not designed—and would not have been embraced as it has—if it were seen as a philosophy that pursues a set of values and outcomes that challenges the inherent “me first, grab as much as you can” rubric that lies at the heart of our economic system and, too often, our human nature. That counter-cultural approach was, and in many ways remains, the objective of SRI and the millions of faith- or values-driven individuals and institutions that are the foundation of this industry we share. For many of these investors, evidence that their concerns (the impact of gambling, abuse of alcohol, tobacco, child labor, and more) “mattered” wasn’t required. Their desire to avoid involvement with certain activities, where possible, and to engage those practices that couldn’t be avoided was sufficient. It was a matter of being “faithful”–whether to religious precepts or personal convictions.
Yet ESG, and its emphasis on demonstrable materiality, cannot and should not be dismissed by SRI investors. ESG’s importance and influence is undeniable. ESG integration in mainstream investing strategies and processes has opened the door to the inclusion of (some) social and environmental concerns at major investment firms and for clients—even among faith-based and mission-driven institutions—for whom traditional exclusion-based SRI was unacceptable or even unlawful. ESG serves to expand the range of investment options for investors who seek to integrate values considerations into their portfolios in some fashion.
Most importantly, the impact the growing body of ESG research provides to SRI shareholder advocates cannot be overstated. These values-driven advocates have long sought to help companies understand and intentionally address the implications of certain corporate social/environmental practices. What we knew innately is increasingly being proven “material.” For those worried about the poor, the marginalized or the state of our planet, the value of this evidence is crucial. As I’ve often said, while values-based investors do not need ESG to be material, we sincerely hope that it will be. Not for ourselves, but for the world we want our investments to shape.
The value of ESG to values-driven investors would not be nearly as great if it were merely the “next step” on the SRI growth curve. Its independence and its Wall Street framework are ESG’s strength. A similar case can also be made for traditional SRI’s value to ESG. Where ESG slowly, painstakingly builds its road of proven materiality, SRI holds the light and points the way into the always-murky future.
A review of the history of socially responsible investing—which I will leave to others—adroitly illustrates how, in so many ways, early practitioners pointed the way to practices, concerns, and behaviors that are now fundamental to the understanding of ESG. From belief in the materiality (though often without undisputable evidence) of various CSR (Corporate Social Responsibility) practices, to the importance of proxy voting, to the value of economic inclusion and targeted investments, SRI investors had “faith” that their vision had value and merit for all stakeholders whether it could be proven or not.
Faith-based and mission-driven investors shaped the first arguments, funded the early studies, lobbied for essential policies, and helped build critical institutions that are foundational to the existence and functioning of ESG today. These SRI investors will continue to serve as the canaries in the coal mine, testing and pursuing—first from a moral or ethical perspective, then from an increasingly “material” point of view—emerging social, environmental and governance concerns. They will continue to explore how their portfolios can be more just, more creatively inclusive, more socially impactful and more values-aligned while remaining true to their financial fiduciary responsibilities and commitments. Some will risk more than others, pilot new opportunities, push issues further. These efforts should not be seen as the labors of troglodytes who don’t “get” ESG or who not yet evolved, but as those engaged in the fertile fields of experimentation that may indicate where ESG will be–some day.
As in any growing, healthy community, the objective is not to ensure everyone shares the same outlook and approach. Rather, the goal is for community members to engage one another, to understand and explore differences and to value the benefits these differences bring individually and collectively. This should be our goal as well, within the SRI/ESG community. Respecting, engaging, challenging one another. Seeking to leverage the distinct and considerable resources and opportunities each philosophy provides in service to our clients, our planet, and to all its people.
Article by Mark A. Regier, Vice President of Stewardship Investing for Praxis Mutual Funds (www.praxismutualfunds.com ) and Everence Financial (www.everence.com ), a leading provider of faith-based financial products in the United States and a ministry of Mennonite Church USA. Mark has been involved in the field of ethical and socially responsible investing at Everence for more than 17 years. He oversees the company’s work in socially responsible investing (including investment screening, proxy voting, corporate engagement and community investing). In addition, Mark works with products and programs throughout Everence to strengthen their creative integration of faith and finances.
In 2014, Mark was appointed to the Board of Directors of US SIF: The Forum for Sustainable and Responsible Investment, the U.S. membership organization for professionals, companies and institutions engaged in sustainable and responsible investing. He has also served as governing board chairman for the Interfaith Center on Corporate Responsibility and was founding chairman for the International SRI Working Group (US SIF). He recently served as board chairman for the Isaiah Funds (disaster recovery investments) and is a board member for Partners for the Common Good (faith-based community investments).
ICCR Arc of Change.
A Cloud of Witnesses
As you’ll read elsewhere in this publication, the impact of faith-based individuals and institutions has been profound. In many different ways values-driven investors have been actively present for—born witness to—the many changes, challenges and unexpected opportunities in both SRI and ESG. The following is a small sample of those witnesses to our shared transformation, shared vision, here and around the world.
Katinka C. van Cranenburgh
Secretary General, 3iG (International Interfaith Investment Group)
Given that a top priority that flows from the beliefs and values of Christianity, Judaism, Islam, Hinduism, Buddhism, Shinto and many other smaller faiths, is the creation of a peaceful world where justice prevails and nature is preserved; this should be good news for investments in sustainable business. Religious organizations don\’t change quickly but, step by step, they can change business and society at large for the better, if only they would all use their financial resources. Now is the moment for them to break through, unite as responsible investors and create change in our economic system.
Francis G Coleman
Executive Vice President, Christian Brothers Investment Services
Faith-based investing is about providing a framework of fiduciary responsibility that integrates the need for capital preservation and expansion, with the fundamental belief of investors being that there is an ethical and moral imperative in which this capital preservation or expansion must exist. We assert a Catholic view of fiduciary duty that draws on the potential for wealth creation offered by contemporary capitalism, modern portfolio theory and global capital markets, but goes beyond to integrate into the investment process the core beliefs that all Catholics share
Jeffrey Dekro
Founder, Tzedec/Justice Community Investment Program (Tzedec) and The Isaiah Funds
Based on a living connection to both the Exodus from Egypt and the Bible\’s prophetic call for justice for the poor and disenfranchised, Tzedec—the first and only identifiably Jewish community investment initiative—implemented Judaism\’s highest degree of Tzedakah (“righteous giving) by making community development loans and organizing American Jews to provide institutional support in low-income communities across the country. Tzedec and the interfaith Isaiah Fund (disaster recovery investing for disadvantaged communities) both underscore the historic commitment of faith-based investors in caring for and including those on the margins in our society.
Laura Berry
Executive Director, Interfaith Center on Corporate Responsibility
For people of faith it is not possible to answer the call to build a more just and sustainable world without considering the role of money. As faith communities developed, back to the earliest days, both the oral and written traditions that inspire and inform contemporary religious practice have a lot to say about financial practices. In modern investment practice, faith communities have an enduring record of engagement that has led to the field we now know as “responsible investing”. Thriving communities of faith and successful financial fiduciaries have always share the practice of seeking answers to complex questions. In doing so, they will continue to contribute to the field, frequently defining “best practice” while influencing investment practices across all asset classes and disciplines.
Bill Seddon
Chair, Church Investor’s Group (UK)
Chief Executive, Central Finance Board of the Methodist Church/Epworth Investment Management
I am convinced that the investments held by church-related organisations should not conflict with the gospel message that they preach. Similarly, those of us with fiduciary responsibility within churches should ensure that the companies in which we invest are called to account where they fall short of appropriate behavior, by engaging with management and seeking improvement. My thirty years practical experience of faith-based SRI investing has demonstrated that these can be achieved without detriment to long term returns.
Joshua Brockwell
Investment Communications Director, Azzad Asset Management
The idea of using one’s money conscientiously and with the intention of doing good for others is a powerful one. Islamic, or halal, investing recognizes that wealth is a divine trust that requires careful consideration before being put to use. It restores the rights of “the other” to their proper position in what is all too often a simple, materialistic calculation of cost versus benefit. At the practical level, this means an emphasis on the time-honored traditions of cooperation, mutuality, and partnership—and a shift away from exploitative transactions—in order to achieve greater social good.
Rev Séamus P. Finn OMI
Director, Faith Consistent Investing, OIP Trust
For centuries people have looked to their faith traditions for guidance in the conduct of their financial and commercial transactions. This practice has evolved into the development of both negative and positive screens and benchmarks that can be used to evaluate very specific products, practices and services. The recent engagements at the Vatican and at Lambeth Palace on the ethical issues around mining and the opportunities of impact investing are both prominent examples of the many relevant contributions and deep wisdom our various faith traditions have to offer.
David Zellner
Chief Investment Officer, Wespath Investment Management
Faith-based investors have brought the moral voice to our nation’s boardrooms. United Methodism, with its rich history of social activism, is evidence that faith-based social principles can and do intersect with long-term sustainable investing priorities and that they are essential ingredients in promoting responsible business practices and leaving a better world to the next generation. We remain dedicated to joining our voices with those of other faith-based and secular responsible investors in promoting this important work.
