Putting your money where your soul is

Published by admin on December 7, 2023

What role can faith communities and institutions play in moving the question of climate finance, including through mobilising their own investments?

This was a question which was addressed by Lorna Gold, Chief Executive of FaithInvest, an international not-for-profit network of religious groups and faith-based institutional investors, at the Faith Pavilion at COP28. FaithInvest was set up four years ago to support faith institutions to invest in a way that is aligned to their values.

Gold argued that the financial system is not fit for purpose to tackle the climate crisis – and is urgently in need of wholesale reform.

“The whole financial system literally underpins the fossil fuel industry. It under girds the sector – in terms of investment, insurance and banking. It systematically under values climate risk in all its forms – and inflates the value of carbon heavy stocks and products,” she told the audience.

So where do faith-based institutions fit into the picture? Many faiths have stood up at conferences for decades – most recently in Abu Dhabi before COP28 – and proclaimed that their theology is aligned to care for the earth, said Gold. The key question is how can faiths leverage their role within the financial markets as investors?

Many will not be aware that faiths are significant investors on global markets, according to Gold.

“The Oxford University study a year ago put the figure at $4 trillion US. That is a vast under-estimate of faith assets. For a start it does not count Islamic finance which alone is estimated at $7 trillion – or the substantial assets of over 2000 Catholic religious orders and universities. If you think of the resources of all the Catholic dioceses of the USA alone or the Daoist temples in China… you get the point. We are talking about a massive amount of capital here,” she said.

Many faiths are saying that they will lead by example and embed sustainability within their own institutions and communities.

“So surely a good place to start is with their own investments?” argued Gold. “Afterall, these are faith assets owned by faith institutions, as custodians of their wider communities.”

So, is this actually happening? FaithInvest has done research on this at a small scale which shows a clear picture, said Gold.

“We scoured the internet to find faith institution investment policies and guidelines and invited groups to send us theirs,” she told the audience. “In the end we assessed well over 100 policies this year. We devised a scorecard to weight the faith alignment of each. This is mainly at the level of governance and commitment first and foremost – and then how that is operationalised. Of the policies we assessed an astonishing 45% made NO mention of their faith in their investment policy. What we also showed is that if institutions do not mention faith in their policy (the front door language), they are pretty much precluded from pursuing any strategies to align their investments. Of the 55% who did mention their faith values, the vast majority had simply translated the values into negative screening or divestment of different sectors, including fossil fuels. For this reason, we named our report ‘good intentions’ – because right now, that is what faith institutions have in relation to their investment policies and strategies.”

So, what would an ideal faith-consistent investor be doing with their investments? Gold said that it is really difficult to have a one size fits all answer as so much depends on the size of the investment and the nature of it. But taking it on a theoretical level, she said she would expect a few things to be in place:

A clear statement of the faith values and principles right up front – and how that influences how the institution thinks and acts in relation to money.
Second, once that is in place, you would expect a number of clear strategies to ensure alignment of investments to these values. These would include exclusions (like fossil fuels), shareholder engagement (using proxy voting or other collective means to ensure your values are being acted on), choice of ‘best in class’ funds based on robust Environmental, Social & Governance (ESG) or other criteria, and finally, a certain portion of funds being used for more ‘prophetic’ investments – perhaps direct investing in impact projects or venture philanthropy. There are many strategies that can be pursued.
Third, you would expect a clear governance structure and process for making decisions on this and for ensuring monitoring and evaluation of the investments impact.

Gold concedes that the question will always come back is whether all this is possible and still to make a profit on the markets? After all, pensions need to be paid, while investment profits pay for lots of good missionary work.

“There are of course real trade-offs but solutions can always be found – particularly with a realistic time horizon and proper signalling to investment managers of the desire to change. The market will respond to values-driven demand,” she said.

To back this up, Gold used the example of when she worked at a senior level in Trocaire and Stop Climate Chaos, a coalition which includes many IEN members, in the past when the aid agency helped the Irish Catholic Bishops to divest from fossil fuels.

“At the time there was not any product on the Irish market which was fossil free. Nevertheless, the bishops went ahead. Their decision had a snowball effect – leading eventually to the government legislating for divestment from fossil fuels of the sovereign wealth fund. It was huge. Suddenly, the market shifted. Seeing the demand, the investment managers who had been cautious and saying it would not work, saw they would lose business and created new fossil free products,” she said,

This kind of engagement is really about systems change, Gold explained.

“It is about faiths really stepping up as deep values-based communities – and recognising the moral responsibility to use everything in our power to help address our global crises. Just imagine what could happen if all faiths – or even a sizeable portion of them – started to invest according to their values? What then if their congregations started to do the same? We could see a huge tipping point – where people everywhere started to demand that their own pensions and other investments started to contribute to climate care rather than destruction, to sow peace rather than war, to build a better future. It is a question of putting your money where your soul is, as Rabbi Jacob Seigel calls it in his most recent book on Jewish investing.”