Being young and engaged in a world without rules
We have arrived at a ”Golden Age” of responsible investing — a time when even the world’s largest private equity investors are “among ESG’s most enthusiastic boosters”. Unfortunately, while the enthusiasm for solutions that require limited or no financial sacrifice, or perhaps, even better, deliver “impact alpha,” are at an all-time high, there seems to be a profound disconnect between the intensity of the rhetoric and the relative lack of interest we see in the corners of the “impact-first” universe that may require one to accept more modest, “concessionary” financial returns.
The answer to a search for impact-first peers might be found in religions. Faith-based investors represent trillions of global assets under management (AuM) and have a long history as pioneers in responsible investing. For example, Ceniarth, Aliter Invest, and Meso Impact Finance are guided by faith-based doctrine, as are Quadia and Eventide.
There seems to be a profound disconnect between the intensity of the rhetoric and the relative lack of interest we see in the corners of the “impact-first” universe.
Despite faith-based institutions being among the original impact investors, most faith-based investors, broadly speaking, have yet to pursue major impact investing portfolios.
For faith-based investors already deploying other responsible investing strategies, impact investing is a natural extension to continue deepening the impact their investment portfolios can achieve. Given the vast wealth held by faith-based investors, activating their assets toward impact can lead to substantive contributions both to Agenda 2030 and the Paris Climate Agreement.
Religious communities of all creeds have long known that faith without action is empty. Intention without willingness to sacrifice for the good of others does little good. Hence, as we ponder the future direction of the impact investing movement, we would be wise to acknowledge its faith-based roots. One notable example is the Nun Funds, which were among the very first to provide low interest loans.
As we ponder the future direction of the impact investing movement, we would be wise to acknowledge its faith-based roots.
New, deeper impact allocations within faith-based portfolios
While enthusiastic about various faith-based efforts, Diane Isenberg and Greg Neichin (2021) express soberness about “the resource constraints and budget realities faced by many institutions in the sector”.
In 2019, the Global Impact Investing Network (GIIN) undertook a project to deepen engagement with the faith-based investing community. The purpose of the engagement was to understand how to best support more conscious and deeper impact allocations within faith-based investing portfolios. The GIIN team did this through a faith-based investing survey. An ensuing GIIN paper (2019) outlines the following key insights from the survey, interviews, and convenings:
- According to the GIIN’s Faith-Based Investing Survey, 82% of the faith-based investor respondents target risk-adjusted, market rate returns, as opposed to 18% willing to entertain below-market transactions. This is understandable in a sector that has traditionally relied on the growth of endowment assets to fund grant-making critical to providing community services or pensions.
- Investment advisors and consultants specializing in impact investing exist; however, they have had limited access to the faith-based investing community.
- Uptake of impact investing has been limited (11% of AuM), although faith-based investors have a history of utilizing other responsible investing strategies, such as negative screening (88%). 2% use biblically responsible investing, Christian faith-based investments with intended spiritual return strategies, and environmental screening.
- Several faith-based investors interviewed perceived impact investing as only available through private market investments or as generating below-market returns.
- Faith-based investors often cited advancing human dignity and protecting the environment as values they use to guide investment decisions. These values align with commonly pursued impact investing themes, including the United Nations Sustainable Development Goals (SDGs).
- However, the commonalities between faith-based investors and impact investors’ interests in the SDGs suggest opportunities for collaboration to pursue shared social and environmental goals.
- Evidence from the GIIN’s faith-based investing survey and 2019 Annual Impact Investor Survey also suggests that faith-based investors and impact investors are not yet aligning around shared interests. Faith-based investing survey respondents stated a top challenge their organizations face in pursuing impact investing is finding investments aligning with their faith tenets and values.
Build the case for impact investing as a tool to further faith-based organizations’ missions and values
GIIN survey respondents were asked what would help them or other faith-based investors allocate more capital to impact investments. Over 50% of respondents indicated a) research and data on the financial and impact performance of impact investments, and b) convening with and learning from other impact investors would be significantly helpful resources.
It will be important to engage influential faith-based investing peers and faith leaders in shaping this messaging and helping to disseminate the case for impact investing, as pursued, for example, by the Swiss Impact Investment Association (SIIA)’s new Faith-based investor working group.
Equip faith-based investors with the means to access relevant impact investment products
According to the GIIN’s 2019 annual impact investor survey, fund managers who raise capital from faith-based investors were asked about their experience. Similar to the faith-based investing survey findings, the top challenge cited by fund managers was that their fund did not target specific impact themes of interest to faith-based investors. A deeper investigation into these results will be done by the SIIA working group to determine what is causing this misalignment.
There could, for example, be a mismatch in the impact offered by fund managers and impact sought by the faith-based investors, so the development of new faith-based investor products may be needed.
There are existing tools and resources that can be shared with faith-based investors on the technical aspects of impact investing. Common impact measurement and management (IMM) systems can guide faith-based investors in measuring, managing, and optimizing the impact of their investments. In addition, financial performance studies on impact investments can be utilized by the faith-based investing community.
Partner to amplify work and increase reach to faith-based investors
In order to engage faith-based investors, it is advantageous to already be active in faith communities or to collaborate with other organizations trusted by faith-based investors. Moreover, a number of faith-based networks have indicated that their members would like to learn more about impact investing.
This interest provides an opportunity and entry point for partnership between faith-based networks, such as FaithInvest and Geneva Agape Foundation (GAF), and impact investing specialists, such as SIIA, looking to support faith-based investors in moving more capital to achieve positive, measurable social and environmental impact results.
Through tailored messaging about the case for impact investing, practical guidance, resources on how to get started, and strategic partnerships, faith assets can be reallocated with deeper purpose. Younger generations increasingly seem interested in how its faith speaks to the larger issues of the world. Thus, to show what they are for, faith-based organizations must mobilize to redesign and push the field of impact-first investing forward and help the economy shift towards improving equity and social justice.
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