Investing Faithfully Across Borders: What Changes and What Doesn’t
By Mark Regier
Praxis Investment Management
We often speak of “international investing” as if it’s only an asset allocation. As if it doesn’t represent vital economic engagement for millions of people, jobs, communities and even countries. We’ve all seen the exposes and documentaries. We know the human injustices and environmental devastation that can be tied to our “prudently managed” investments. This reality poses particular challenges for those seeking to integrate their deeply held values into their investment portfolios.
For those of us in the U.S., we may take vacations abroad, but that doesn’t necessarily give us a perspective on the way these international communities actually work. We need to understand and integrate those unique inter-relationships when we talk about international investing, because the realities outside the U.S. aren’t the same as the realities here at home.
When we look at international investments, it is probably not hard to envision that the world is a complicated place. We know that on many different fronts in our lives. Investing in that complicated world is also complicated and can come with caveats.
I recently spoke with Hillary Sunderland, CFA, Chief Investment Officer at Beacon Wealth, about some of those differences. She put part of the challenge well by stating: “U.S. investors think they know what companies do; they know the stories. But in an increasingly interconnected global economy, markets don’t operate in isolation — what happens abroad inevitably affects what happens at home.”
For faith-based investors, the values and impact objectives don’t necessarily change when we cross a border. But the approach to making a difference and our expectations may have to.
On relevant social and environmental data, we’ve been encouraged. The amount of information available from our global data partners — including on Chinese companies — has grown substantially and gives us confidence that our screens are restricting the kinds of companies we want to restrict. Not perfectly, of course. No system is infallible.
Comparing a screened international index versus an unscreened index, the sustainability risk score improved meaningfully. At Praxis Investment ManagementTM, we screen out about 20% of the index1 — roughly a fifth — based on screens for alcohol, tobacco, gambling, military, egregious environmental or social violations and more. The sustainability score for unscreened index sat around 20.6; the screened version improved to 18.5. By integrating these sustainability scores into the portfolio optimization process, we’ve found those scores can improve even further.
That tells us screening can make a real difference internationally. But it also can’t carry the full weight of our values by itself.
Tim Macready, Head of Global Advisory at Brightlight Group and a longtime industry colleague, offered a useful example when we spoke recently: “If you adopt a screen that requires at least one woman on the board, all but two Japanese companies fail it.”
The challenge then is to figure out what’s actually going on in a place like Japan. What are the barriers? Is it sexism? Is it cultural or historical? Is it something else? And what kind of involvement might move things forward effectively — avoidance, engagement or something else?
This is where I think we need to hold our expectations a little more lightly. Bringing an aligned, but slightly altered, lens to our view on international investments. At Praxis, we believe one should always be careful about focusing on standards of perfection in an imperfect world. This is true for investing as a whole. But it is especially true in the international arena.
Engagement Looks Different Across Borders
Similarly, engagement across borders can be more challenging to establish, particularly with companies that are not overly active in the United States. That has to do with everything from time zones to cultures to language to assumptions of proper business practice. Finding a way to bridge some of those differences — to find shared value in communities, the environment and of all stakeholders in the business process — can be a unique undertaking when dealing with international companies.
Relationship building also takes more time. One can expect a longer timeline for reaching mutually agreed-upon success. And establishing what defines success for your values is important. Are we talking about developed markets? Emerging or frontier markets? Success may not mean making a small or mid-sized manufacturer in a developing market operate like a Silicon Valley behemoth. One has to set expectations properly. But progress can and should clearly be seen and understood, and in some cases it can be surprising.
Over the years, Praxis has had opportunities to work with a number of international companies. We’ve worked with Toyota on concerns around EV battery production, safety standards and recycling operations. We co-led shareholder engagement with BP following the Deepwater Horizon oil spill as the company made changes in its board, sought to reestablish its commitment to safety and environmental protection and as the industry worked to prepare for and prevent future catastrophic spills. We have also been involved through the Interfaith Center on Corporate Responsibility in coalition efforts following the Rana Plaza disaster, working over a period of years on new safety standards for workers in the textile industry.
Proxy voting presents another opportunity to promote change — and another set of challenges internationally. In some markets, the costs and logistical hurdles for casting votes are substantial, and one may not realistically be able to meet the requirements for voting. There are also far fewer opportunities to vote on critical issues relating to governance and sustainability than in the U.S.
Tim has put the broader point this way: “If your faith is relevant to how you invest in the U.S., it is at least as relevant outside the U.S. — and in some places, more so.” You just have to find a way to do so effectively.
Beyond Screening and Shareholder Engagement
Achieving impact through international investments is not limited to processes of restriction and advocacy.
Impact bonds, for example, are particularly relevant for faith-based investors seeking to build diversified fixed-income portfolios with global impact. Many market-rate, dollar-denominated impact bonds deliver clear, positive social and environmental benefits, often in underserved communities around the world.
The U.S. dollar impact bond market has significant international reach. Many foreign issuers come to the U.S. dollar market specifically to access new pools of capital, and domestic issuers frequently finance overseas projects. Supranational issuers such as the International Bank for Reconstruction and Development and Central American Bank for Economic Integration have built their models around promoting economic development and reducing poverty, and they issue bonds where the proceeds are directly tied to these sustainability and development goals.
Community investing offers another avenue. Like impact bonds, it is relatively easy to invest with — or lend to — established community development institutions with international impact through dollar-denominated instruments. What is important about these often below-market investments is that they deliver unique solutions designed to reach disadvantaged communities in ways other market-rate investments cannot. This makes the choice of partner critical in achieving success, both for the investor and for underserved communities around the world.
At Praxis, we’re pleased to work with leading community development financial institutions like Calvert Impact, LISC and Capital Impact Partners to include community investments in all Praxis products, including pioneering their inclusion in Praxis Impact ETFs. We believe that those most often on the margins of society deserve our investment, not just our charity.
A Wider Perspective
International investing brings unique opportunities to start conversations with companies that have never had these conversations before, and to bring expectations they’ve never faced before. It also requires us to understand what it means to undertake this work in the complexity of international economic arenas. This complexity exists for companies as well.
No one at Praxis knows what it takes to mine conflict minerals in the Democratic Republic of Congo. How hard is that to do in a way that has integrity and is faithful to the people who are doing the work? We can see the pain. We can see the horrors. But doing things right is also hard work for the companies. There are times when we need to recognize that and to honor the effort, when appropriate. Doing so does not change our responsibility or desire for accountability. Engaging and investing in international companies is a learning opportunity for us as well.
At Praxis, we remind our clients and investors that this work is about faithfulness, not perfection. It is about honestly engaging the stewardship journey God has called us to — a process of holistic, encompassing faithful living.
Our Praxis stewardship investing philosophy has been rooted in the concept of Christian stewardship — linking the productivity of investment activity with a deep awareness of God’s vision for the world and its people.
Screening matters. And so does engagement and proxy voting. Capital can be directed toward projects and organizations serving people and communities far beyond our borders. But the stewardship of international investments will not always look like it does in U.S.
Our expectations have to adjust. The commitment to faithfully expressing our values through our investments doesn’t.
Article by Mark A. Regier, Vice President of Stewardship Investing for Praxis Investment ManagementTM, a leading faith-based, socially responsible investment management firm from Everence Financial® designed to help people and groups integrate their finances with faith values.
Mark has been involved in the field of ethical and socially responsible investing for over 25 years. He oversees Praxis’ work in socially responsible and impact investing, including investment screening, proxy voting, corporate engagement and community investing. He works with products and programs throughout the firm to strengthen their creative integration of faith and finances.
Mark is also Director of Sales for Praxis Investment Management, where he provides leadership for and management of the Praxis sales team. In this role, his primary focus is identifying and pursuing strategic opportunities for growth within the socially responsible, faith-based and impact investing industry.
During his career, Mark has served on the boards of more than 25 organizations and initiatives, including the Board of Directors of US SIF: The Sustainable Investment Forum, the U.S. membership organization for professionals, companies and institutions engaged in sustainable and responsible investing. Mark is a recipient of the SRI Service Award, the U.S. sustainable investment industry’s highest honor. With over 30 years of service to the church and a background in ethics and theological studies, Mark is often a resource on faith-based and community investing issues.
About Praxis Investment Management
Since 1994, Praxis has offered investment products designed to meet practical needs for everyday investors seeking to steward their assets consistent with their desire to promote positive social and environmental impacts. Praxis brings a faith-based approach to ETFs, mutual funds, multi-fund portfolio solutions and money market accounts. Based in Goshen, Indiana, Praxis is a company of Everence Financial. Learn more at https://www.praxisinvests.com
Footnotes
Morningstar® Developed Markets ex-North America Target Market Exposure NR USD IndexSM: Measures the performance of large-, and mid-cap stocks in developed markets outside of North America, representing the top 85% of the investable universe by float-adjusted market capitalization. It is not possible to invest in an index.
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