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Faiths advised on ethical investment practice

03 May 2024

The report cover

The report cover

FAITH organisations are advised to pursue best practice “in order to achieve a high degree of faith consistency within the investment portfolios that serve their mission”.

Ethics represent, for them, “a unique and essential element of investment governance”, suggests a joint paper from FaithInvest — a group that seeks to empower faith groups to invest in line with their beliefs — and the investment consultant NEPC.

In the paper, Faith-based Investment Governance, they conclude that such organisations provided spiritual and moral guidance for their adherents, and often sought to reflect their faith values in their investments. But the paper, which builds on that of September 2021, From Faith Values to Investment, reports that only just over half of them (55 per cent) clearly stated the part played by faith in their Investment Policy Statement (IPS).

It advises them, therefore, to look more closely at their broader governance framework to ensure full integration of faith values throughout.

There can, it acknowledges, be perceived tensions between the need to generate adequate investment returns and the desire to invest in line with values. But, it warns, “Failure to address potential misalignment of investments and faith-based values can often lead to reputational risk or other kinds of unintentional harm.”

It suggests that the most effective governance structures avoid loosely defined positions and provide clarity about the responsibilities and limits of discretionary action of all involved across various capacities.

“Success starts with the board of directors,” it says, recommending the appointment of individuals with diverse expertise, including investment experience and a shared commitment to the organisation’s mission. There should be regular assessments of its investment performance, it says, with metrics for success and tracking of key performance indicators.

Faith organisations’ beliefs, teaching, and values can be integrated or mapped to important documents such IPSes — something that requires “bringing a questioning spirit of faithful discernment to each aspect of governance, both when the organisational elements are being initially constructed and as the structure is enhanced or improved over time,” it suggests.

It warns: faith-based investment guidelines should be as detailed and measurable as their secular counterparts; all faith-based organisations grapple with the tension created between more aspirational faith-aligned goals and investment “pragmatism”. An organisation might decide to “not let the perfect be the enemy of the good”, but there was growing demand for investment managers to provide more faith-aligned product offerings to address this issue.

The make-up of an ethics committee deserved careful consideration, it concluded, as the issues it addressed spanned finance; faith; important societal, political, or environmental dynamics; and topics internal to the faith organisation itself.

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