Responsible Investment and the Faith-Based Investor
(Originally published November 2020)
A Tipping Point?
There can be no doubt that the field of responsible investment is in the midst of a series of significant changes. Rating systems are moving from the qualitative toward the quantitative, and subjective research techniques are being challenged by artificial intelligence and big data. The structure of the industry is also shifting, with mainstream investment managers entering a field that for many years has been served mainly by specialized boutiques. Brian Bruce, the editor of the Journal of Investing, recently surveyed the 30 largest asset management organizations and found that every one of them now claims to have Environmental, Social and Governance (ESG) capability.1
Some might also note a shift in emphasis in the field away from values – especially religious values, and toward disclosure standards and empirical tests of ESG performance within an industry. One way to see this change is in the relative prevalence of exclusions, which tend to be more values-based, and ESG integration, which tends to have a more quantitative and sustainability-oriented character. The distinction can be subtle, but it is very important: exclusions are typically about what a company does, ESG integration is typically about how the company does.
The Global Sustainable Investment Alliance reports that the two approaches are now roughly comparable in scope: exclusions are employed in the management of $19.8 trillion in assets globally; ESG integration accounts for $17.5 trillion, but is growing faster (but many managers employ both techniques, so there is some double-counting in these figures).2
So does this represent a tipping point? Will values-based exclusions soon be eclipsed by newer approaches? I strongly doubt it, for two reasons. First, the wealth management market – particularly in the U.S. – is more focused on religious values than many realize. And second, faith-based investors have not just been a part of the responsible investment movement, they were its creators, and remain vital to its success.
A Faithful Market
While surveys find that perhaps ¼ of the investment assets in the U.S. are managed according to some type of responsible investment policy3, this figure seems low when you consider the beliefs of the population. When asked in a recent Gallup poll if they believed in God, 87% of respondents in the U.S. said yes.4 And, despite a decline in churchgoing, most still identify with a particular religious tradition. According to the Pew Research Center, roughly 2/3 of Americans consider themselves Christian, although demographic and cultural changes have led to significant change over the past ten years (see chart).5
The novelist John Updike noted that religion can be “a mode of defiance, insisting, This is what I am.”6 For most Americans, it remains an important marker of identity.
Here is a story that I have heard several times in recent years, with different investment teams in different organizations: A new ESG product is developed, embodying the best modern techniques and perhaps incorporating some new innovations. The marketers call prospective investors to test the waters, and the word comes back that there is strong early interest – if the product can be adapted to the needs of faith-based investors.
The tipping point, if it comes, still seems far off.
Influence on Responsible Investment Practice
Religious investors have been a vital force in the development of modern responsible investment. Pax World, the first responsible investment mutual fund in the U.S., was launched in 1971 by Methodist ministers Luther Tyson and Jack Corbett.7 In that same year the Interfaith Center on Corporate Responsibility (ICCR) was founded, and over the next half century members of that organization have been actively engaged with corporations on issues ranging from the South Africa boycott to climate change.8 In 2020 ICCR members filed 281 shareholder resolutions, resulting in 114 substantive agreements for change at corporations.9 .
Religious concerns on some issues are quite longstanding. Harmful products are a good example. By most surveys tobacco is the #1 or #2 exclusion used in the field.10 Christian avoidance of harmful products goes back at least to the sermons of John Wesley, one of the founders of Methodism, who in the 1800’s warned his congregation that they ought not to “gain by hurting our neighbor in his body…we may not sell anything which tends to impair health.”11
Over the past decade, however, climate change has surpassed even tobacco as a governing issue in responsible portfolios. In 2015 Pope Francis issued an encyclical letter strongly endorsing this trend, and stating plainly that “for human beings… to destroy the biological diversity of God’s creation; for human beings to degrade the integrity of the earth by causing changes in its climate, by stripping the earth of its natural forests or destroying its wetlands; for human beings to contaminate the earth’s waters, its land, its air, and its life – these are sins.”12
As practitioners we sometimes forget that we live in a religious world, and that deeply-held matter of faith may be of greater import to our clients than the profit and the loss. The participation of religious groups in the world of responsible investment has been constructive, effective, at times even decisive. We’d be wise to remember this as we prepare to meet the challenges to come.
(Article feature photo by Cosmin Gurau)
Article by Lloyd Kurtz, CFA, senior portfolio manager and Head of Social Impact Investing for Wells Fargo Private Bank in San Francisco, California. Prior to joining Wells Fargo, Mr. Kurtz was chief investment officer and co-head of the investment committee for Nelson Capital Management. Before joining Nelson Capital, Mr. Kurtz spent nine years as a research analyst and director of quantitative research at Harris Bretall Sullivan & Smith, a San Francisco-based money management firm. Before that he was senior research analyst at KLD Research & Analytics in Boston, one of the first research firms to specialize in ESG (Environmental, Social, and Governance) investment.
At KLD, Mr. Kurtz participated in the development of the Domini Social Index, now known as the MSCI KLD 400, the first broad-based ESG benchmark in the U.S. Mr. Kurtz has written numerous articles on the impact of ESG factors on portfolio risk and performance. In May 2017 he was appointed to the Sustainable Accounting Standard Board (SASB), a non-profit organization that sets standards for corporate sustainability disclosure. He has been in the financial industry for more than 29 years.
Mr. Kurtz is affiliated with Northwestern University’s Kellogg School of Management, where he serves as faculty co-chair of the Moskowitz Prize research competition, and as a member of the steering committee for the Impact & Sustainable Finance Faculty Consortium.
Mr. Kurtz holds an MBA from Babson College and a B.A. from Vassar College, and holds the Chartered Financial Analyst® designation.
 Brian Bruce. “Editor’s Letter.” The Journal of Impact and ESG Investing, Fall 2020.
 Global Sustainable Investment Alliance. 2018 Global Sustainable Investment Review.
 USSIF. Report on US Sustainable, Responsible, and Impact Investing Trends. 2018.
 Zack Hrynowski. “How Many Americans Believe in God?” The Short Answer, Gallup, 11/8/19.
 “In U.S., Decline of Christianity Continues at Rapid Pace.” Pew Research Center, 10/17/2019.
 John Updike. “The Future of Faith”, The New Yorker, November 1999.
 “Jack Corbett Remembered, Mourned by Pax World Family.” Press release, Pax World Management Corp., 3/27/2003.
 Interfaith Center on Corporate Responsibility. “History of ICCR.”
 Interfaith Center on Corporate Responsibility. “Our 2020 Victories.”
 Global Sustainable Investment Alliance. 2018 Global Sustainable Investment Review, page 14.
 John Wesley. “The Use of Money (Sermon 50)”. Wesley Center Online.
 Pope Francis. “Laudato si’: on care for our common home.” Encyclical Letter, 5/24/2015.
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