REGISTER FOR THE FAITH-BASED IMPACT INVESTING: GROWING THE FIELD EVENT ON SEPTEMBER 4

Faith-based investors represent trillions of AUM and have a long history as pioneers in sustainable investing. However, despite leadership in responsible investing strategies such as shareholder advocacy, divestment, and negative screening, faith-based investors, as a whole, have yet to pursue major impact investing portfolios. Earlier this year, the GIIN started a project to deepen engagement with the faith-based investing community and to understand the opportunities that would support more conscious and deeper impact allocations within faith-based investing portfolios. This webinar is part of a series of convenings to share insights from that work.

The GIIN team will start with an overview of key findings uncovered through surveys and interviews. We will share information on current activity, perceptions of impact, and opportunities to work more with faith-based investors.

In addition, Wespath Benefits and Investments—a leading institutional investor from the faith-based community—will share how they have successfully embedded an impact investing program in their portfolio and lessons learned for other faith-based organizations.

This webinar is part of a series of convenings designed to engage those stakeholders in the faith-based investing community, who are interested in moving more capital towards positive, measurable change for a more sustainable and equitable world. To this end, GIIN team also will share ideas on how to grow the field of faith-based impact investors, and an invitation to the faith-based investing community to workshop these engagement strategies at the upcoming GIIN Investor Forum.

Speakers:

• Sylvia Poniecki, Director, Positive Social Purpose Lending Program, Wespath Benefits and Investments

• Trent Sparrow, Senior Analyst, Impact Investments, Wespath Benefits and Investments

• Katrina Ngo, Senior Manager, Strategic Partnerships, Global Impact Investing Network

• Hannah Dithrich, Senior Associate, Research, Global Impact Investing Network

REGISTER FOR THE EVENT HERE

This article was originally published here.

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by Jason Myhre

Against all the striving of sustainable, responsible, and impact investors today, there still exists a strong, prevailing headwind: the popular belief that the purpose of business is to create wealth. To make profit. To maximize shareholder value.

This purpose of business was advanced, most famously, by Milton Friedman:

There is one and only one social responsibility of business – to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud. (emphasis mine)[1]

According to this quote, the overarching purpose, the highest priority, of business in the world is to maximize the wealth of shareholders.

No doubt there are many, especially among the SRI investing community, for whom this statement of business purpose rings hollow. Yet, what we say business is for matters a great deal more than most realize.

Purpose matters for two very important reasons.

First, purpose defines our assessments of good and bad. Alasdair MacIntyre, a moral philosopher, illustrates this using the example of a watch:

To call a watch good is to say that it is the kind of watch which someone would choose who wanted a watch to keep time accurately[…] The presupposition of this use of ‘good’ is that every type of item which it is appropriate to call good or bad […] has, as a matter of fact, some given specific purpose or function. (emphasis mine) [2]

What is the purpose of a watch? To keep time accurately. Thus, a watch is ‘good’ if it keeps time well; a watch is ‘bad’ if it loses track of time.

While this may seem merely academic, our judgments of good and bad are shaped by our understandings of a thing’s purpose. Purpose is the key concept in natural law philosophy, which has been the dominant line of Western ethical thought for 23 centuries. We intuitively know good and bad from what we understand something’s purpose to be.

Consider this for business. If we say that the purpose of business is profit, then a ‘good’ business is one that makes profit; a ‘bad’ business is one that does not. And if any business that makes a profit is a ‘good’ business, then it doesn’t matter what they do — let a thousand flowers bloom. Many businesses, under the banner of profit, have felt perfectly fine, for example, creating products or services that prey on human weakness. We can object, and say business ought not to do this, or that business ought to do that, but in the case of purpose, the ‘is’ defines the ‘ought.’ Without an alternative purpose for business, we have no basis to critique business’s more deleterious examples, or to orient business otherwise.

Second, purpose defines what works and what doesn’t. In the above quotation from MacIntyre, we see that purpose implies a specific design or function. As an expression of design, purpose tells us how something functions best.

The theory of managing for shareholder value maximization says that a business will prosper best when it makes all decisions for the financial benefit of its shareholders. Other parties to business, such as employees, are subordinated.

On this point, Environmental, Social, and Governance (ESG) investors contend that there are non-financial drivers of material financial performance. Yet, in doing so, we unwittingly concede that the true purpose of business is, in fact, profit. And that the Department of Labor calls all SRI investment strategies ‘economically-targeted investments’ shows this.

To quote Henry David Thoreau, “There are a thousand hacking at the branches of evil to one who is striking at the root.”[3]

Purpose is the Root

If we consent to the belief that the purpose of business is to make money, all of our efforts towards encouraging a more virtuous practice of business remain on the fringes. Unless we fundamentally re-define the purpose of business, we are left to either:

Try to change ‘the rules of the game’ (Friedman’s phrase) through regulation and political action OR

Try to send economic, market-demand signals for businesses to behave more to our liking by collectivizing our investment efforts in SRI.

If we want a more beautiful and good practice of business in the world, we need to address the truthfulness of the claim that ‘the purpose of business is profit.’ It is here that Christianity offers an answer.

For Christians, the belief that business is just about money is not just distasteful, but patently false. Christians believe work itself, and all human working, including in business, has a God-given specific design.

The story of work begins in creation.

In it, God himself is portrayed as a worker. He creates the cosmos, and everything in it. Everything he makes he appraises good; of the whole of his creation, very good.

God creates us “in his own image” (Genesis 1:27). While the full meaning of humanity’s God-likeness is thick, in this first chapter of the bible it certainly describes our capacity, like God, for creative and meaningful work — and of our ability, like God, to create things that are qualitatively good.

God gives us work. “Then the Lord God took the man and put him in the Garden of Eden to (purpose clause) cultivate it and keep it” (Genesis 2:15, emphasis mine). Theologians describe this verse as the ‘creative mandate’ or the ‘cultural mandate’ — work is a divine directive. We were made to work. Work is thus fundamental to human identity, and constitutive of human flourishing.

God tells us how to use work. James Davison Hunter, a sociologist at the University of Virginia, writes:

In the Hebrew derivations (of Genesis 2:15), the key verbs are abad and shamar. The former can be translated as work, nurture, sustain, husband; the latter means to safeguard, preserve, care for, and protect. These are active verbs that convey God’s intention that human beings both develop and cherish the world in ways that meet human needs and bring glory and honor to him.[4]

God entrusts us with the task of world-making. In the story of creation, God created the garden rich with latent potential, yet withheld task of completing it for the people he would make. God intends humanity, through work, to be his partner in developing the world. Humanity was to enlarge the locus of the beauty and provision of the garden, in all our culture making, throughout the world and for the benefit of all.

Because of the story of work, Christians believe that the purpose of business is to serve the global common good.

In a statement formed by the Christian story of work, author and philosopher, Charles Handy writes:

…To turn shareholders needs into a purpose is to be guilty of a logical confusion — to mistake a necessary condition for a sufficient one. We need to eat to live; food is a necessary condition of life. But if we lived mainly to eat — making food a sole or sufficient purpose of life — we would become gross. The purpose of a business, in other words, is not to make a profit, full stop. It is to make a profit so that the business can do something more or better.[5](emphasis mine.)

Faith convictions are often cast as personal and private, yet often it is the case that what we believe in our hearts matters for others and the world, as well.

This video was originally published here.

A Princeton educated, Wall Street Financial Analyst lost millions in the 2007 financial crash. Watch to see how after much praying, fasting and support from her Fellowship of Companies for Christ International group, she rebounds to live out her life’s calling to bring wealth creation and jobs to her native New Mexico.

With the help of faith friends from our gathering of Faith Driven Investors, we’ve begun drafting a set of Unifying Principles. Our hope is that we can begin to come together under these thoughts and ideas to work toward a more full vision of what it means to let our faith drive our investments.

If you have thoughts, questions, concerns, things you’d change or add, please let us know! We’re relying on you, our community, to make this resource the best it can be.

Investment capital affords the stakeholder with the opportunity to steward influence. Shareholders in both public and private companies can call investor relations with concerns, or advocate for the launch of faith-based employee resource groups (as now exist at Google, Apple, Facebook, SalesForce, Uber and other companies), or even advocate for chaplaincy in some form. This influence might also look like an Angel investor coming alongside an entrepreneur to encourage them in their discipleship.

God has put resources in our hands, and one day he will return and hold us accountable for our faithfulness in stewarding what he has given us. We work urgently with that day in mind.

Just like the servants from the Parable of the Talents in Matthew 25, God has placed gifts, resources, and talents in our open hands. These things we have are gifts from above and are to be used for God’s glory. Knowing this creates a sense of urgency around the influence we have been given.

Understanding that God will one day return and that we will be held accountable for our faithfulness with his resources, we work hard in an eager anticipation of God’s return. Because we know that the things of this earth are temporary—that life is more than what we presently see—we seek God’s wisdom on what to do with the influence He has given us in the here and now to best serve what’s to come.

The Faith-Driven Investor always leans in, always looks forward, always approaches God with an eagerness to receive first from Him before spreading and multiplying His resources in return.

Using Scripture as Our Guide

• Romans 11:29 For God’s gifts and his call are irrevocable.

• 1 Peter 5:2 Shepherd the flock of God that is among you, exercising oversight, not under compulsion, but willingly, as God would have you; not for shameful gain, but eagerly.

• 1 Corinthians 12:4-7 There are different kinds of gifts, but the same Spirit distributes them. There are different kinds of service, but the same Lord. There are different kinds of working, but in all of them and in everyone it is the same God at work.Now to each one the manifestation of the Spirit is given for the common good.

• Acts 20:28 Pay careful attention to yourselves and to all the flock, in which the Holy Spirit has made you overseers, to care for the church of God, which he obtained with his own blood.

• Matthew 5:16 Let your light shine before others, that they may see your good deeds and glorify your Father in heaven.

• Matthew 24:44 So you also must be ready, because the Son of Man will come at an hour when you do not expect him.

• Romans 12:11 Never be lacking in zeal, but keep your spiritual fervor, serving the Lord.

This article was originally presented at The Christian Economic Forum 2018.
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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 2018.

— by Johan Du Preez

Investments reward shareholders by increasing value (increased share price) and/or generating income (dividends). In short, we can refer to these as the economic benefits of ownership/financial returns from investments. A shareholder may be primarily interested in one or the other (value or income), or may want a healthy balance.

Increasingly, however, shareholders are also interested in the impact of the investment on the environment in which it operates. This we can label as the responsibility of ownership/impact of the investments.

When we view private equity investments from a Christian and therefore eternal perspective, we are challenged to view both the financial returns and the impact of ownership from the perspective of a steward representing the owner, rather than from a perspective of being the owner.

For the purpose of this paper, I assume that the economic benefits of ownership (financial returns) will increase the funding that is available for God’s work, and that the responsibility of ownership (impact) is evaluated from a biblical perspective. As such, it focusses on capital deployment “on behalf of God,” and the paper attempts to provide a very practical framework to facilitate discussion and decision-making in this regard.

Investment Strategies

Even though the above context should be easy for Christian private equity investment managers to understand and agree upon, the strategy to achieve this is bound to give rise to different opinions. In the end, there are many good and complementary (albeit distinctly different) strategies through which to ensure the biblical deployment of capital.

Absolute clarity about the strategy is important for commercial success (to avoid chasing after a thousand different things), for spiritual peace of mind (to avoid being guided by guilt and/or fear), and for personal well-being (understanding your role/calling in the investment space).

The potential trade-off between financial returns (economic benefits of ownership) and impact (responsibility of ownership) is illustrated in Figure 1.

• Financial returns (vertical axis) and impact (horizontal axis) can be either positive or negative.

• Negative financial returns represent donations – giving in excess of investment returns (it can also represent investments that unintentionally yield negative returns but I ignore that for purposes of this paper).

• Negative impact equates to exploitation of people or planet.

• The green area indicates investments that achieve the combination of positive financial returns and positive impact; this is the focus of the rest of this paper.

• Four quadrants are identified and named:

  • Mediocre – below benchmark on both financial returns and impact

  • Returns first – favouring returns over impact (and achieving above benchmark returns)

  • Impact first – favouring impact over returns (and achieving above benchmark impact)

  • No Trade off – the ultimate achievement (high financial return and high impact)

Hurdles and Frontiers

Expanding on Figure 1, we can set Hurdles and identify some Frontiers (see Figure 2). Frontiers are considered objective (and fixed), whilst Hurdles are subjective (and variable).

• The Financial return hurdle is the minimum Financial return the investment needs to achieve, regardless of measurable positive Impact.

• The Impact hurdle is the minimum measurable Impact the investment needs to achieve, regardless of Financial returns.

• The vertical axis is described as the Moral Frontier, i.e. we should operate to the right of it (avoiding negative impact at all cost). In practice this typically means having a negative list of things that will automatically disqualify an investment (such as sin industries, harmful environmental impact, exploitation of people, etc.)

• The horizontal axis is described as the Sustainability Frontier, i.e. we should operate above it (ensuring it is sustainable by achieving at least financial break-even).

• The orange line is described as the Stewardship Frontier, i.e. does the combination of Financial returns and Impact translate to good stewardship when viewed from a biblical investment perspective? (i.e. investments should be above and to the right of the orange line).

Post-investment Strategies

Clarity about the investment strategy (as briefly discussed above) is of utmost importance, but should also be complemented by stated objectives post investment. This is illustrated by Figure 3.

• An investment strategy to target the “Impact first” quadrant can be complemented by a post-investment strategy to enhance the financial returns of the investment without necessarily compromising the Impact (see Red arrow). This can be done by introducing some commercial thinking into the impact-driven business model (“Head” intervention).

• An investment strategy to target the “Return first” quadrant can be complemented by a post-investment strategy to enhance the Impact of the investment without necessarily compromising the Financial returns (see Green arrow). This can be done by introducing some impact considerations into the return-driven business model (“Heart” intervention).

The Tree of Life Foundation as a Practical Example

At the Tree of Life Foundation (TOL, a not-for- profit) we invest commercially to sustain ministries. Our end goal is to act as an “Investment Bank” for Christian Capital (providing a full spectrum of debt and equity solutions through an entity in which the shareholding is held by a non-profit), but as a first step we embarked on private equity investments in 2007.

Starting out we had to be clear about our initial focus, and we chose to adopt a “Return first” approach (driven by the experience of the key individuals, market opportunities, etc.). Due to our group structure (with the shareholding vesting in the Tree of Life Foundation), the profits from investment activities (and all the equity in the group) are available to fund Christian activities. Our task is therefore to decide what component of available capital should be re- invested as opposed to being distributed to Christian ministries. This is guided by our “dividend policy” that initially was set at “no dividend” and then gradually increased to the current policy, which states that 2.5% of Net Asset Value must be distributed to ministries annually (i.e., an “endowment mindset” allowing for sustainable giving with growth in real terms). The increase in dividend rate (distribution to charities) is an example of an increase in impact at group level (green arrow).

Getting back to the “Return first” strategy, it is very important for us to have a testimony in terms of biblical impact over and above the impact of giving away profits. In this regards we:

• Defined a negative list of industries we will not invest in (sin industries) and practices we won’t tolerate (exploitation of people or planet, management with questionable ethics, etc.). The criteria is not what is legal, but what is morally acceptable from a biblical perspective (the higher hurdle).

• Have a stated objective of introducing an impact component post investment.

The first bullet is self-explanatory, and easy enough to do. The way we handle the second bullet is to declare our intentions upfront (pre- investment) to the target investment company— we represent Christian capital and we therefore bring this worldview to the table when we join as a shareholder. This paves the way not only for robust discussions on ethical behavior, but also on remuneration, staff welfare, corporate giving, etc. We have been pleasantly surprised by the willingness of companies (in whom we invest) to embrace this, even in cases where such interventions caused a slight reduction in financial returns (i.e. where the green arrow points slightly downwards as it moves from left to right).

Summary

• Financial returns and Impact represent two biblical parameters of investment decisions.

• It is of paramount importance that the Christian investment manager is clear about both the focus of its investment strategy and the post-investment strategy for each investment.

• In the context of this paper:

  • The investment strategy is the chosen quadrant in which the targeted investment should find itself (Return first, Impact first, No trade off).

  • The post-investment strategy is the targeted intervention that the investment manager seeks to facilitate and unlock post investment (Red/Green arrows).

  • The latter strategy will differ from one investment to the next, but it is highly recommended that it is defined upfront during the process of making the investment.

Read the whitepaper in its original form here.

This video was originally published here.

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In Scripture, when God’s people approach Him with their dreams and desires, He sometimes answers with an unexpected question: “What do you have in your hands?” In this short video, HOPE International explores how God invites His people, both in Scripture and today around the world, to play an active role in restoring brokenness.