Experience in the management of the patrimony of a religious congregationEconomic growth has always had positive aspects: increased life expectancy, increased equality between men and women, increased literacy rates, decreased poverty. However, there are also negative consequences such as secondary effects on the environment, repercussions on civil society and negative effects on corporate governance.
In recent years, the issue of globalization has changed the focus of economic systems. The 2008 financial crisis caused huge economic losses and led different financial operators to question the fact that profit alone, as the purpose of economic activities, is not enough if it is not accompanied by the achievement of the common good.
This gave rise to the idea of economic development that does not exclude the principle of sustainability, identified in the acronym ESG (Environmental Social Governance). With this new concept, there are three aspects to be taken into account: first, respect for the environment - there can be no sustainable development to the detriment of the environment; then, respect for human and social rights, common to all human beings; finally, respect for the law and a system of shared rules, which is summed up in the term Governance.
Ethical investing means investing using strategies that allow for competitive financial returns, but also mitigating and, if possible, negating ethical risks, ESG risks.
The ESG approach, as a medium- to long-term investment strategy, offers an even deeper analysis of securities with the "faith-based" approach, using a strategy that allows not only considering which securities to exclude, but also which to include.
An investor who follows a religious moral doctrine will pay even more attention to the ethics of his investments. For example, he will make sure that the listed companies in which he invests respect the values of life, the environment, work and family, and without seeking only profit he will follow the principles of religious faith.
The Catholic Church and ethical investment.
The Social Doctrine of the Church with the encyclical "The Social Doctrine of the Church".Centesimus annus"Pope John Paul II in 1991, with the encyclical "Caritas in veritatePope Benedict XVI, calling for an ethics of finance in 2009, and with the encyclical "The Ethics of Finance" in 2009.Laudato si'" by Pope Francis in 2015, has always reiterated the importance of developing a global and sustainable economic system.
The United States Conference of Catholic Bishops (USCCB) has devoted a major study to the drafting of a "....Socially Responsible Investment GuidelinesThe "to protect human life against the practices of abortion, contraception, the use of embryonic stem cells and human cloning.
The USCCB Guidelines also promote human dignity in the face of discrimination, access to medicines for all, but also indicate not to participate in companies that promote pornography, produce and sell weapons and encourage investing in companies that pursue economic justice and fair labor practices, protect the environment and corporate social responsibility.
Active shareholderism based on religious values is also very present in the United States through the Interfaith Center on Corporate Responsibility. In 1971, it was the first to file a motion against General Motors for violating human rights by doing business with South Africa during apartheid.
Today, there are funds and indexes that rely on Catholic principles when evaluating securities for inclusion in portfolios, making a selection that follows Catholic morals.
There are passive funds that replicate a benchmark index and active balanced funds that are rated as ethical and in line with Catholic morals, based on ratings that not only follow ESG principles, but also the morals of the Catholic Church.
Ratings may change from year to year so that investors and financial advisors can evaluate ethical products over time.
Impact reversal.
The impact investment strategy, which has its origins in microfinance, has several relevant aspects. It usually involves private equity, venture capital and green infrastructure, but is gradually expanding to other forms of investment. Private equity and venture capital investments are not accessible to all investors, so impact investing is also moving towards "public equity", i.e. regulated markets.
Impact investing in regulated markets allows the presence of all investors, not only institutional investors, as is the case with private equity investments.
To be classified as impact investments, listed investees must meet material criteria, i.e. they must help solve a serious environmental or social problem, and they must meet complementarity criteria, i.e. they must add value.
Through their products or services, investees must respond to a need that has not been met by competitors or governments. To do so, these companies must use cutting-edge technology, innovative business models and respond to the demands of disadvantaged populations.
In addition, private markets alone cannot meet all the demand for social impact investing; investment in equities and bonds traded on regulated markets can better meet this need, so there is also a contribution at the asset class level.
The social impact investment strategy is widely used by Catholic institutional investors because it aims to combat the social inequalities of people in the poorest and most disadvantaged areas of the world, while generating a financial return.
The Catholic Church has developed a strong interest in impact investing, with a medium to long-term time horizon, both in the pursuit of profit and solidarity, and in charitable works that will not necessarily produce a financial return.
The need to invest without excluding the principles of sustainability and an ethical perspective is a non-negligible part of investing. There will be people who will argue that the purpose of investing is simply to make a profit, but there is no denying the importance of acting responsibly in the financial world, for ethical or religious reasons, but also from a forward-looking perspective.
Today's investments should be directed to the common good of present and future generations, ensuring that the investor obtains both a financial and ethical benefit.
Assistant Econome General of the Congregation of the Mission of the Vincentian Fathers, registered financial and investment advisor.
