Faith-Based Investing and Sustainability
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by Kevin Bifulco
Faith-based investments (FBI) are generally considered as the first proponents of the responsible investing segment, which screens out companies with businesses not complying with a precise set of beliefs. On the other side, sustainable issues are affecting financial markets including environmental, social, and governance metrics into corporate valuation.
Thus, since religious-driven investment firms are exhibiting an increasing trend both in terms of asset under management and fund’s creation, this research aims to comprehend not only their financial outcomes but also their sustainability performance in relation to specific equity indexes.
The analysis demonstrates that religious funds overperform the three selected benchmarks in all the ESG scores, while only a part of the funds has shown higher risk-adjusted returns in the long-term period.
Introduction
In the last decades, faith-based investments, generally recognized as FBI, are a growing niche inside the financial markets. Therefore, the relation between religions and finance has sawn an increasing attention by academics, to analyze differences and peculiarities between the “standard” conception of finance system, where the maximation of shareholders’ profit is the fundamental characteristic, and the “new” approach, usually considered part of the Social Responsible Investment (SRI) sector1, driven principally by the adherence to faith values. If this topic is associated with the sustainable direction wished and promoted at various levels of societies, from national governments to international organizations, in particular after the 2008 financial crisis, sorts out a subject that has not yet received a particular attention.
Sustainability is a widespread concept, it may be well expressed with the definition adopted by the United Nations World Commission on Environment and Development (WCED, 1987):
“Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”
Many fields may be affected by this sentence and surely the economic, social and environmental aspect, where the interest for future generations and the preservation of their needs must be balanced with the present generation. This achievement may be obtained only if high moral values are part of the equation.
Consequently, in accordance with different religious standards, faith-based investment institutions should reveal a considerable positive attitude with respect to environmental, social and governance (ESG) topics, or considering Corporate Social Responsibility (CSR), and with United Nations Social Development Goals (SDGs) launched in 2015 and to be reached by 2030.