As social impact investing enters the financial mainstream, the role of religious institutions as key drivers of the movement is evolving. Kevin Thomas, CEO of the Shareholder Association for Research and Education (SHARE) provided insight and guidance at a recent seminar for the Oikocredit Canada Support Association (OCSA) regarding current trends in faith-based investment.
“Religious institutions were really at the core of creating a responsible investment,” he noted. “That’s been true for much of the development of responsible investment in Canada and globally.”
Responsible investing has entered the mainstream with huge uptake. Pressure from faith-based institutions has been joined by a wide range of other drivers including increased demand and reporting requirements from institutional investors and pension funds. Despite the market constraints of Covid-19, this year’s proxy season suggests that the interest in environmental, social and governance (ESG) proposals continues unabated.
“There is big interest around climate change, Indigenous reconciliation, and other human rights issues,” observed Thomas.
While this outpouring of interest in responsible investment is a good thing, avoiding lip service commitments to ESG policies and reporting is a core issue for faith-based investors. A key challenge is ensuring that the focus is on achieving positive outcomes, rather than just downside risk management.
“It’s a positive encouragement to be involved in something like OCSA because there is a clear link to outcomes in what you’re doing,” Thomas pointed out. “There’s no doubt that the kind of work you’re doing has a place in there. There’s still a bit of a question amongst the investors we speak with about how they use their position and influence the mainstream.”
Some Canadian faith-based communities are dealing with the challenges of contracting membership and aging leadership. This may lead to new investment approaches, including consolidating their financial holdings with similar organizations. A social impact investment may be a suitable option for a pooled fund with beneficiaries with values, goals, and missions that are aligned.
Pressure from the Pews
Grassroots activism is at the heart of the faith-based social impact investing community. Congregation members are highly engaged and want their organizational investment committees to champion impact investing.
Thomas noted that this has typically taken the form of recommending divestment from companies held in the portfolio that are not well aligned with organization values, goals, and mission.
Flipping the dial from a divestment/risk management approach to a proactive focus on achieving improved social outcomes via an investment strategy is a work in progress. OCSA has an opportunity to help change the focus by providing investment committees and their advisors with a positive story demonstrating how an investment in Oikocredit International could help achieve relevant aspects of their organizational goals, values, and mission.
Lack of internal financial management capacity has led many smaller faith-based communities to rely heavily on asset managers. They typically put a lot of due diligence effort into choosing good asset managers who provide the advice as to what goes into the portfolio, the stewardship the fund gets, and how organizational values are applied to investment decisions.
The role of the professional asset manager is elevated further in pooled funds, which limits the investors’ ability to select for any particular investment. Thomas reported that there is a thirst for knowledge in the faith-based community for continuing education regarding best practices in appropriately directing asset managers and holding them accountable.
Thomas remarked that while pension committees are typically more conservative in their scope for responsible investment, other types of faith-based investment funds may have a stronger interest in social impact outcomes and a greater degree of willingness to direct their asset managers to dedicate portions of their portfolio accordingly.