The Landscape for Christian Investing
Image by Jeremy Bishop
This article was originally presented at The Christian Economic Forum 2019.
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The Christian Economic Forum hosts a world-class Global Event each year to connect the top industry leaders and experts from around the world with other individuals who are compelled to act upon the principles of God’s economy. The following paper was presented at CEF 2019.
— by Endel Liias
[Note: This white paper is taken from a short report written first in March 2018 and then updated in February 2019 (online here)]
Socially responsible and impact investing is big business these days, representing more than 25% of all assets under management in the US.[1] Individuals and institutions are increasingly looking to align their financial portfolios with their values, and the same holds true for Christian investors.
However, while the mainstream marketplace has seen rapid growth, maturation, and classification, the Christian or “Kingdom” investment marketplace is less well-defined. Limited industry research and actionable information prevents existing stakeholders from connecting with each other and inhibits new participants from entering the market—reducing beneficial collaboration, capital flows, and the development of businesses and organizations that have both financial and Kingdom impact.
This paper is an effort to address this problem and bring greater clarity to the Christian investing marketplace by answering some basic questions and providing some practical resources:
• What is socially responsible investing (SRI) and impact investing, and where do they fit in the broader investment spectrum?
• What is Christian investing and how is it distinct from traditional SRI and impact investing?
• What are the different types of Christian investing, what are some examples, and how are they accessed?
• Who are the key stakeholders in the Christian investing marketplace, what roles do they play, and what are some examples of each?
• Where is this industry heading and how can you get involved?
My hope is that this information will be useful to CEF conference attendees and will provide helpful context for discussions on “Christian Approaches to Investing.”
BACKGROUND
To understand the Christian investment marketplace, it is important first to define the broader world of socially responsible investing (SRI), of which Christian investing is one type. SRI is any investment strategy that considers both financial return and social impact. The most common form of SRI screens companies for their environmental, social, and governance (ESG) impacts, while other approaches avoid certain industries like tobacco or firearms (“negative screens”). Most SRI is in public markets through mutual funds and exchange-traded funds (ETFs), and accounts for $12 trillion (T) of the $46.6T in assets under management (AUM) in the US—25.7% of the market.[2]
Impact investing, a specific subset of SRI, is investment into companies, organizations, and funds with the intention of generating a financial return alongside a measurable social and environmental impact. Two key characteristics differentiate impact investing from SRI: intentionality and measurability. Impact investments are made with the expressed purpose of effecting a specific change, which must be measurable. SRIs, on the other hand, can be more general in their intent, and the non-financial impacts need not be measured. Impact investments are, therefore, made primarily into private companies and funds, where non-financial impacts can be more easily measured. The US impact investing market was $228 billion (B) in 2018[3]—the result of rapid growth in recent years but still only 1.9% of the total $12T SRI market.
The rapid growth of SRI and impact investing: Both SRI and impact investing have grown significantly in recent years. SRI grew from $3.07T in 2010 to $12 in 2018—a 391% increase—while impact investing grew 496% in the past five years, from $46B in 2013 to $228B in 2018. Impact investing market size data was not gathered prior to 2013.
Where do SRI and impact investing fit in the broader financial picture?
Historically, financial assets have been viewed as falling into one of two categories: (1) traditional investments, which have sought to maximize financial return; and (2) philanthropy, which is donated to charitable causes. SRI and impact investing bridge this gap along the financial spectrum, providing opportunities to invest capital that makes money and does good—both/and instead of either/or.
The investing spectrum: Impact investing and SRI straddle the space between philanthropy and traditional investing. Impact investments always have a positive, measurable impact with returns ranging from below market rate to market rate. SRIs always target market rate returns, but do not necessarily have positive or measurable social impacts; they seek to align with investor values and at a minimum do no harm. The 2018 US market size for each category was: $410B in philanthropy,[4] $228B in impact investing, $12T in SRI, and $46.6T in traditional investing.
Can an individual do SRI and impact investing? Yes, and it depends.
Yes. SRI can be done by any investor through a 401(k), IRA, brokerage account, or financial advisor. Because it is done via public markets through investment vehicles like mutual funds and ETFs, the options are abundant and easily accessible to the everyday “retail” investor. This ease-of-access is why SRI makes up more than a quarter of the entire US investment market.
It depends. Impact investing is more difficult to access and is traditionally limited to high-net worth individuals (HNWIs) and accredited investors. This is because most impact investments are made into privately-held companies and private equity or venture capital funds, all of which have minimum investment amounts that typically preclude the everyday investor. This barrier to access is one of the primary challenges facing the impact investment sector. However, there are a few promising options that are emerging.
First, new equity crowdfunding platforms “democratize” access by enabling everyday investors to make impact investments in companies of their choosing for as little as $100. Second, impact investing can be done with charitable capital from a donor-advised fund (DAF), with any returns cycling back into the DAF for re-investment. The success of investment intermediaries like these will be key to the continued growth of impact investing.
CHRISTIAN INVESTING
Christian investing is essentially SRI or impact investing but with Christian values or outcomes as the non-financial impacts of a given investment. To illustrate this, let’s consider the Christian equivalents of SRI and impact investing.
Christian SRI is called Biblically Responsible Investing (BRI)
BRI is a strategy that considers an investment’s financial return as well as its alignment with Christian values and biblical principles. As with SRI, the vast majority of BRI is done via the public markets through mutual funds and ETFs. BRI has historically involved applying “negative screens” to filter out companies with unsavory practices, such as pornography, gambling, or abortion. However, today’s fund managers are increasingly applying “positive” screens to identify companies that proactively further biblical values, such as low-income financial services, family-friendly entertainment production, and safe water provision. Each BRI mutual fund or ETF has its own investment strategy and interpretation of what biblically-responsible means, providing a range of options for Christian investors along the ideological spectrum.
Christian impact investing
Christian impact investing, also called “Kingdom” impact investing, is investment into a company, organization, or fund with the expectation of receiving both a measurable financial return as well as a measurable “Christian” return.[5] This can take many different forms, from overt evangelism to the faith convictions of a company owner. And like traditional impact investing, nearly all Christian impact investments are made into private companies and funds that are better able to measure Christian impact. At present there are no industry standards for measuring these non-financial impacts; it is something each company and fund must determine on its own, often in discussions with investors.
Market size
There are no formal statistics on the overall size of the BRI and Christian impact investing markets, but it is safe to say they comprise only a small percentage of the overall $12T SRI and impact investing markets. A high-level, informal analysis of the US Sustainable Investment Forum’s (SIF) 2018 SRI market report estimates that around 3% of the assets were Christian-oriented (BRI).[6] This would suggest that the current BRI market is approximately $360B. If we then consider that impact investing is 1.9% of all SRI, applying this same proportion to the $360B BRI figure would approximate the Christian impact investing market to be around $7B. Again, these figures are not scientific and are only meant to provide a high-level, broad sense of what the current market might be. Further in-depth research is required.
Investor access
Accessibility to BRI and Christian impact investing also parallels their traditional market analogues: BRI is available to any investor through mutual funds and ETFs, whereas Christian impact investing is largely limited to HNWIs and accredited investors. However, new investment intermediaries like equity crowdfunding platforms and impact investing donor-advised funds (DAFs) are increasing access for everyday investors.
What does the Christian investment landscape look like?
Below is a visual representation of the spectrum of Christian investing, from private companies and funds (impact investing) to mutual funds and ETFs (BRI). Impact scope and measurability is greater for impact investments than BRI, whereas BRI is more accessible to everyday retail investors.
CHRISTIAN IMPACT INVESTING
1. Individual companies and organizations are the core of Christian impact investing. They operate across industries and geographies, range from seed-stage to mature, and can be both for-profit and non-profit (e.g. an enterprise charity is a non-profit that generates revenue to fund operations and, where applicable, provide returns to investors). Business as Mission, or BAM, is one well-known type of Christian impact business, with the distinguishing characteristics of being very intentional about Kingdom impact and explicitly concerned with the world’s poorest and least evangelized people.
2. Private equity (PE) and venture capital (VC) funds are investment vehicles that contain a portfolio of private companies. Each fund has its own investment strategy (business sector and stage), return profile (financial, Christian, other), and minimum investment amount.
BIBLICALLY-RESPONSIBLE INVESTING
1. Mutual funds contain a portfolio of public stocks, bonds, and other assets that are professionally managed and easily accessible to the everyday investor. Like PE and VC funds, they have different investment strategies, risk/return profiles, and fee structures.
2. Exchange-traded funds (ETFs) are similar to mutual funds in that they are a professionally managed portfolio of public securities. However, they tend to have lower minimum buy-ins and fees, different tax treatment, niche offerings, and are traded throughout the day like stocks. At present there are only a few Christian ETFs on the market.
INDUSTRY STAKEHOLDERS AND ACTIVITIES
The previous section highlights examples of investment opportunities along the Christian investing spectrum. This section explores the wide range of other actors and activities that make up the broader ecosystem.
• Investment intermediaries and vehicles facilitate BRI and Christian impact investment transactions and can take a variety of different structures. The most common are PE/VC funds, mutual funds, and ETFs, as outlined on the previous page. However, directly investing into an individual company or organization can be difficult, so several entities exist to facilitate these transactions, including impact investing donor-advised funds (DAFs), equity crowdfunding platforms, angel investing networks, loan syndicates, and private investment firms.
• Business incubators, accelerators, and capacity builders play a critical role in training and equipping impact investment companies for success, from their early stages (incubators) to more mature phases (accelerators). Services include strategic planning, management and leadership training, mentoring, access to capital, and others.
• Thought leaders provide research, information, and insights that empower Christian investing stakeholders and contribute to a flourishing ecosystem. Activities include producing industry research, organizing conferences, and hosting webinars and forums. There are currently a limited number of Christian investing thought leaders, and more are needed as the industry continues to grow.
• Industry events are essential to the development of a robust Christian investment industry. There are currently several events catering to different segments of the market (BRI versus impact investing). These gatherings provide a forum for stakeholders across the industry to meet, build relationships, share knowledge, and grow the marketplace.
• Financial and investment advisors help educate investors about the Christian investing marketplace, develop financial strategies that align with their goals, and deploy resources accordingly—whether toward BRI, Christian impact investing, or both. There are also advisory firms that specialize in training and equipping financial advisors to serve investor clients. The specific offerings and expertise of financial advisors vary from firm to firm.
TABLE: INDUSTRY STAKEHOLDERS AND ACTIVITIES
Below are some examples of key players and happenings in the industry. This list is not comprehensive.
FINAL THOUGHTS
The wide range of stakeholders and activities in biblically-responsible and Christian impact investing is evidence of a robust and burgeoning marketplace, and this growth is likely to continue apace in the coming years.
Over the next three decades, approximately $30T in assets will be passed from baby boomers to millennials—the largest intergenerational wealth transfer in history.[7] This will have major implications for the way money is invested, as younger generations increasingly look to spend and invest in accordance with their social, environmental, and moral convictions.
This presents particularly unique opportunities for the development of the Christian investing marketplace. As noted, informal analyses estimate the market size to be roughly $360B at present; however, internal research from the Christian Investment Forum (CIF) suggests that the potential market is much larger—on the order of $2.2–2.3T. Coupled with the forthcoming transfer of wealth, this could portend a significant increase in the demand for investment options that are financially profitable and biblically purposeful. Meeting this demand will require the skills, creativity, and hard work of stakeholders across the Christian investing industry, as well as the participation of new entrants.
[1] US SIF 2018 SRI Investing Trends Report, https://www.ussif.org/blog_home.asp?Display=118
[2] US SIF 2018 SRI Investing Trends Report, https://www.ussif.org/blog_home.asp?Display=118
[3] The Global Impact Investing Network (GIIN) Annual Impact Investor Survey 2018, https://thegiin.org/research/publication/annualsurvey2018
[4] Giving USA 2018: The Annual Report on Philanthropy, https://givingusa.org/
[5] Many different terms are used to describe the non-financial return of a Christian impact investment, including spiritual, missional, Kingdom-oriented, faith-based, and faith-driven, among others. Since no single term is consistently used across the industry, I’m using Christian to avoid confusion.
[6] Conducted by John Siverling, Executive Director of the Christian Investment Forum (CIF), and colleagues.
[7] The “Greater” Wealth Transfer: Capitalizing on the Intergenerational Shift in Wealth, Accenture Wealth and Asset Management Services,