Values Alignment In Investing By Richard Todd and Sarah Newman

Asking Questions About Values Alignment Investing is More Important Than Ever!

Biblically responsible investing in the faith-based institutional world is growing as more products come onto the market, making it easier for faith-based institutions to invest in alignment with their beliefs. There are no official published screening guidelines for Protestants to follow, but most agree that screening out sin stocks, such as those practicing or affiliated with abortion, pornography, stem cell research, alcohol, and transgender services, is good practice. The fear used to be that these screens led to diminished returns, but this is no longer always true. These screens are a step in the right direction as environmental, social, and governance (ESG) has become part of the conversation as a “socially responsible” way to invest. Still, buyers should beware: ESG does not always align with Christian values.

Activist investing has also become more common. Some managers have had limited success using proxies to influence companies on anti-Christian policies.

In recent years, mega fund managers such as Blackrock and Vanguard have started to pose value-based questions to companies they invest in. They are doing so to encourage these companies to increase their ESG score. Higher ESG scores can create an attractive opportunity to be environmentally friendly, socially sound, and maintain good governance. These ideas are not always bad, but companies’ emphasis on “green” values and diversity, equity, and inclusion (DEI) have overtaken the profit motive. The federal government and agencies like the Department of Labor, the Securities and Exchange Commission, and the U.S. Treasury have embraced these values and created regulations around them.

Christians can and do debate some of the merits of ESG. Most of the Christian screens mentioned above are not considered in ESG portfolios. In some instances, ESG scores can be improved with practices antithetical to the Church, such as offering abortion benefits. Many investment managers and other vendors to the Church have embraced ESG and instituted practices within their organizations of values that conflict with the Church.

Investment consulting firms like Innovest construct portfolios using various products, managers, and strategies. In evaluating firms offering these investment products and managers, we assess their track records to determine if the performance will be repeatable. We also want to understand their ability and approach to managing a Biblically responsible portfolio. 

Our due diligence on managers who run Christian portfolios includes asking about the values of managers we utilize in building Christian portfolios.  

Innovest’s due diligence on investment advisor’s values includes the following:

• Describe your culture.
• Do you have a faith statement?
• Describe your firm’s philosophy on charitable donations. Please share a list of organizations receiving donations.
• Does your benefit plan pay for abortions and abortion transportation across state lines?
• Do you have a philosophy and statement on religious freedom?
• In the last five years, has your company sponsored organizations or events that may conflict with the Church or Christian values?
• Does your organization manage money for organizations that may conflict with the Church or Christian values?

We sometimes receive surprising answers. Some of the largest managers of faith-based dollars have donation and marketing practices that directly conflict with the Christian faith. Christian fee dollars will support ideologies they are potentially screening out in a Biblically responsible portfolio.

We have also found that having a Christian name does not guarantee that the portfolio screens uphold Christian values or that the values of that manager align with our Christian faith. Innovest conducted a study where we surveyed 40 Christian asset managers, not only asking them about values alignment but also asking them about faith-based screens. Only 94% reported that they screen out abortion, and 75% screen on embryonic stem cell research. In matters of values alignment, one reported that they have no opinion on providing abortion benefits to their employees.

Most investment advisors do not ask questions about values because their values conflict with the Church’s. However, as the world becomes more values-conscious, it is prudent for Christians to ask these tough questions.

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Richard Todd is CEO of Innovest Portfolio Solutions, providing investment consulting services to faith-based organizations. He has more than 36 years of experience in investment consulting and currently provides consulting services to institutions and families. Innovest has over 340 clients with assets of $45 billion and 60 employees. Rich is a frequent author of fiduciary and investment-related matters.

Sarah Newman, Principal, is responsible for business development in the faith-based and secular nonprofit markets. She has over 19 years of experience in nonprofit development, marketing and event planning, and business development and has also owned a small business for 15 years.

More information on Innovest Portfolio Solutions LLC can be found at www.Innovestinc.com.

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