The Faith Driven Investor movement stands on the shoulders of those who have come before us. John Siverling and the Christian Investment Forum are just one of the groups who have led this conversation, and we’re grateful to feature their contribution to the movement here.

According to new survey research done by the Christian Investment Forum in 2013, the level of Biblically Responsible Investing has seen strong growth with advisors who have used BRI in their practice, with 25% of them indicating their level of BRI assets has grown by over 20% in the last year and only 4% had a decrease.  This in part may be the result of the high level of interest from both advisors and investors.  80% of advisors said they would like to recommend BRI funds to their clients, and only 10% felt faith should not play a role in investing.  Not only are advisors interested in BRI, but they view it as credible and comparable in performance to other investing practices.

The survey also illustrated opportunities for continued growth in BRI assets.  The market share of BRI assets remains significantly below what would be expected based on both investor and advisor interest.  Responses from the survey suggest that knowledge of BRI, the investment choices, and the performance of BRI funds and portfolios needs to be improved in order to increase the usage of Biblically Responsible Investing.

From that survey data, following are the key takeaways:

Key Takeaway #1 – Awareness is Needed

The AWARENESS of the breadth of funds that use BRI is not as high as could be expected among advisors that are pre-disposed to a faith based advisory approach, though there is a general understanding of the core features associated with Faith Based Investing.

Key Takeaway #2 – Knowledge can Improve

The level of satisfactory KNOWLEDGE in BRI lags behind the awareness of the concept with financial advisors.  While they believe it is a credible approach, they seem uncomfortable to more widely implement it due to that lack of education.

Key Takeaway #3 – Usage will Follow

The USE OF BRI strategies, and investments into funds that use BRI falls significantly lower than the level the financial advisors indicated they would like, what they indicated their clients would prefer, as well as what other surveys have suggested is desired by investors.

The opportunity to fill the gap of awareness and knowledge can result in meeting a significant unmet need in the marketplace for funds and investing strategies that align with investor’s faith and values, similarly to how the socially responsible investing movement has grown.

According to the Forum for Sustainable and Responsible Investment, $3.31 Trillion of US domiciled assets were invested using SRI practices and held by 443 institutional investors and 272 money managers.  Removing the institutional market from the analysis, they estimate there were 720 SRI funds with a total of just over $1.0 Trillion in assets under management in 2012.  Based on a total market of $14 Trillion, SRI funds account for roughly 7% of total assets under management

The best estimates indicate there were approximately 89 religious mutual funds in 2006 with total assets of $17.7 Billion.  This estimate includes all religions, including non-Christian.  Research by independent wealth managers has identified approximately 50 Christian Faith Based Investing funds.  Based on the interest levels expressed by both advisors and investors, and using a current low average allocation of a 10% allocation to BRI funds, the potential market for Christian Faith Based Investing is approximately $1.6 Trillion, or 100 times greater than where we are today.  That suggests a long way to go but a great deal of opportunity.

The Faith Driven Investor movement stands on the shoulders of those who have come before us. John Siverling and the Christian Investment Forum are just one of the groups who have led this conversation, and we’re grateful to feature their contribution to the movement here.

Following the 2013 survey on this same topic, research from the new 2016 Survey done by the Christian Investment Forum showed strong progress on the awareness, knowledge and credibility of Faith based investing among financial advisors.  The survey suggests the initiatives at CIF as well as other like minded organizations is changing perceptions in a positive way, and should be continued with the core Kingdom Advisors as well as with an expanded audience of advisors and investors.

One finding from the survey results was over 82% of respondents saying they were familiar with BRI, with 54% saying they were Very Familiar with BRI.  Those Familiar with BRI were up 29% from the 64% of respondents who felt that way in 2013.  In addition, there were no respondents who indicated they had never heard of BRI, and only 1% said they were not very familiar, in comparison to 13% who were in those categories in 2013.  In essence, within the respondent pool there was universal awareness, and significantly greater familiarity with Faith-based investing.

Another finding was that advisors agree that Faith-based Investing can meet the fiduciary requirements of their clients, and is a credible and appropriate method to invest in a professional manner.  83% agreed with that statement, and only 4% disagreed.  In addition, over 88% of the advisors who responded said they were interested in recommending investments that align with client values.

The survey also illustrated opportunities for continued growth in BRI assets.  The market share of BRI assets remains significantly below what would be expected based on both investor and advisor interest.  Responses from the survey suggest that knowledge of BRI, the investment choices, and the performance of BRI funds and portfolios needs to be improved in order to increase the usage of Biblically Responsible Investing.

From that survey data, following are the key takeaways:

Key Takeaway #1 – Awareness is Nearly Universal

The AWARENESS of BRI and what makes up BRI has grown to nearly universal familiarity within the respondent pool, but there remains a gap between that awareness and a more detailed functional knowledge of product and service offerings currently available.

Key Takeaway #2 – Knowledge and Credibility are Improving

The level of satisfactory KNOWLEDGE in BRI is catching up to the awareness level, as is the belief in the credibility and professionalism of BRI.

Key Takeaway #3 – Stay the Course on Message

There has been a sizable improvement in each of the key areas for adoption of BRI.  The key learnings from this success can be used to expand awareness and education programs to a larger segments of the advisory profession as well as with investors.

The opportunity to fill the gap of awareness and knowledge can result in meeting a significant unmet need in the marketplace for funds and investing strategies that align with investor’s faith and values, similarly to how the socially responsible investing movement has grown.

According to the Forum for Sustainable and Responsible Investment (USSIF), $8.72 Trillion of US domiciled assets were invested using Sustainable, Responsible, & Impact (SRI) investment practices or integrate ESG factors into the investment process.  Those assets were owned or managed by 477 institutional investors, 300 money managers, and 1,043 community investment institutions.  This represents a 33% increase in assets compared to 2014, and a 263% increase from 2012 when $3.31 Trillion was under management. According to USSIF, this now represents 1 out of every 5 dollars invested which incorporate some form of SRI.

The number of SRI funds grew to 1,002 with total assets of $2.6 Trillion, compared to 720 funds with just over $1.0 Trillion in assets under management in 2012.  Based on a total market of $18.1 Trillion, SRI funds account for roughly 14% of total assets under management, double the market share from 2012.

Specific to Faith-based Investing, research by the Christian Investment Forum suggests there remains a large market opportunity within the individual or household investor base.  Based on the individual investor market size, and Christian investors who express interest in aligning investing with their faith, this market is approximately $1.3 trillion.  That total is a small percentage of the estimated $11.9 trillion in total mutual fund assets held by Christians, but is estimated as those Christians who are more passionate about alignment and thus are the most likely to lead a shift towards BRI.  This estimate is very close to a similar study done by McKinsey for a large financial institution.  That study estimated the addressable market at $2.3 trillion.  The opportunity is still much larger than that, as research as indicated as many as 80% of U.S. Christians would be interested in aligning their investing with their values.   With 73% of the U.S. population identifying as Christian, a rough estimate suggests over 58% of the total market could be interested in Faith based investing products and services.  That would equal $10.6 trillion of assets.

Originally posted on Christian Investment Forum

The Faith Driven Investor movement stands on the shoulders of those who have come before us. John Siverling and the Christian Investment Forum are just one of the groups who have led this conversation, and we’re grateful to feature their contribution to the movement here.

This 2019 Survey of Financial Advisors is the 3rd edition to study the current state of awareness, knowledge and use of Faith Driven Investing.  The first study was completed in 2013 and followed by the 2nd edition in 2016.

The 2019 survey, similarly to the 2013 and 2016 versions, focused on three areas beyond general demographic information.  The first objective was to understand advisor Awareness of Faith Driven Investing – what were the critical components, and how they perceived it as credible.  The second objective was to assess advisor Knowledge levels about Faith Driven Investing – did they feel reasonably informed and comfortable with the practice so that they could effectively communicate it to clients.  The third objective was to understand actual Usage of Faith Driven Investing by advisors and their clients, including possible barriers to increased use.

There are various terms used to describe investing that is purposefully aligned with Christian faith.  Some of the more commonly used are Biblically responsible investing (BRI), Values based investing, Faith-based investing, and Morally responsible investing.  In this report, the term Faith Driven Investing is used most often, but other terms may be used interchangeably.

From that survey data, following are the key takeaways:

Key Takeaway #1

Within the respondent pool, which is more closely aligned and sympathetic to faith and investing concepts, the AWARENESS of Faith Driven Investing and what makes up FDI remains at nearly universal familiarity, but there remains a sizable gap between that awareness and a more detailed functional awareness of the breadth of currently available product and service offerings.

Seventy-eight percent (78%) of respondents are members of Kingdom Advisors, and are more likely to be supporters of faith and investing concepts.  Fifty-four percent (54%) of respondents were very familiar with Faith Driven Investing (FDI), and ninety-six percent (96%) felt they were at least somewhat familiar with the investing concepts.  The advisors identified the main components of a Faith Driven Investing approach, but a large majority of them (87%) were not able to accurately recognize the number of Faith Driven Investing fund and product offerings available.

 Key Takeaway #2

The level of KNOWLEDGE in Faith Driven Investing, and belief in the credibility of FDI, is growing but has yet to reach a tipping point where more client conversations are regularly occurring.

Just over half of the respondents (51%) felt well educated on Faith Driven Investing.  Only three percent (3%) said they believe Faith Driven Investing is not a credible and appropriate way to manage client wealth, and ninety percent (90%) are interested in recommending investments that align with their clients’ faith and values.

Yet when queried, seventy-five percent (75%) said that less than 10% of their clients had asked about Faith Driven Investing.  Twenty-four percent (24%) had no client communication on Faith Driven Investing.

Key Takeaway #3

The Use of Faith Driven Investing is steadily increasing, with interest in recommending FDI to clients remaining well ahead of the usage patterns.  This suggests that Faith Driven Investing could grow significantly with the continued development of resources and tools to overcome barriers.

Sixty-four percent (64%) of respondents indicated they currently use Faith Driven Investing with their clients, but for most of them the allocations to FDI remain small.  Of those not using Faith Driven Investing currently, thirty-six percent (36%) were very interested to begin using FDI and another thirty-four percent (34%) were interested.

The top five reasons given for not using Faith Driven Investing were 1) No client demand, 2) Lack of information & knowledge, 3) Limited investment options, 4) Unproven performance, and 5) Need for better screening tools.

CONCLUSION

The results of this 2019 Survey of Financial Advisors on Faith Driven Investing Awareness and Use show continued, albeit slowing, improvements in all three areas – awareness, knowledge, and use.  This slowing growth is relative to the last survey completed in 2016, which had shown more substantial improvements compared to 2013.  In part this is due to a higher baseline, so sizable gains are more difficult to achieve.

To a large degree, the issues limiting the use of Faith Driven Investing remain the same since the initial study in 2013, though with some lessening in importance over the last 6 years with increased awareness and knowledge.  There continue to be gaps in perception compared to reality on product availability and performance.  Yet some further structural changes are needed – additional investment products that can more closely align with the different faith values of investors, increased acceptance of funds onto proprietary platforms, and additional research to support the already existing data on ESG, FDI, performance, and expenses.

The greatest opportunities to build momentum towards increasing the use of Faith Driven Investing are in helping encourage further education, and more importantly encourage conversations between advisors and investors.  Both advisors and investors show high levels of interest in Faith Driven Investing, but neither advisors or investors are initiating a conversation or asking questions about FDI.  More education on the topic of Faith Driven Investing can help to increase confidence for advisors to have the conversation.  Similarly, more investor oriented information can help Christians recognize their role in asking questions of their financial advisor.

For those interested in supporting and growing Faith Driven Investing, there are strong reasons to be optimistic about the future growth in the use of FDI overall, and as a share of total assets under management.  Data from this survey confirms previous research that a majority of investors and advisors alike have an interest in better aligning investments with the client’s personal faith and priorities.  Macro trends in the market are showing investor interest in a more meaningful and integrated approach to investing in alignment with values.  There are more organizations engaging in the conversation about FDI, and collaboration between them on messaging is improving.  All of this helps to encourage others to understand they are not alone in desiring a more integrated approach to investing with their faith.

Originally posted on Christian Investment Forum

The Faith Driven Investor movement stands on the shoulders of those who have come before us. John Siverling and the Christian Investment Forum are just one of the groups who have led this conversation, and we’re grateful to feature their contribution to the movement here.

Review of Academic Studies

It is valuable to consider the wider literature on academic studies that exists related to research on the relationship between the broad Responsible Investing field and superior financial performance.  This is important since there is widespread perceptions and opinions in the professional financial market that incorporating social or faith based values into investment decisions leads to inefficiency, higher risk, less diversification, and lower returns.  This viewpoint is especially strong from those that espouse Modern Portfolio Theory and Shareholder Value Maximization as their beliefs of investing, and who do not view investing as ownership in the underlying assets but as an act entirely independent.

Four recent studies or reports are particularly helpful for this review.  Each of these papers provides a composite analysis of an even larger set of papers on these topics.

The Journal of Investing Paper

A research paper in the Journal of Investing in Fall 2010 attempted to determine if, as is widely suggested by some in the financial industry, the incorporation of faith based values into the investment decision making process, leads to under-performance relative to the broad market or to the related SRI market.  The paper reviewed prior research on this topic, and performed primary research based on an aggregate of existing faith based funds.  The conclusions from both literature review and the primary research contrasted with the perceptions in the market.  The authors conclude that the additional screens and criteria used by the faith-based funds does not hinder performance relative to the market.  The authors also found in their research that faith-based funds did better than SRI funds in general.

“…the additional values-based screens used by these (faith-based) funds do not hinder their performance relative to the market overall.  We also find that faith-based funds do better than SRI funds in general.  From the findings, we can conclude that investors do not seem to sacrifice satisfactory economic returns by making ethically and socially responsible investing decisions based on their faith.”

In this study by Lyn and Zychowicz, the researchers did specifically look only at faith based funds.  However, the study included all faith based funds, and did not specifically look at Christian faith based funds.  Also, the study used composite performance data across all categories so may distort or hide category specific variances in relative performance and relationships.

Mercer Research Report

There are two research reports from Mercer that reviewed the relationship between financial performance and ESG criteria.  The most recent report is cited here, as it includes information on both the current report and the earlier report.  The current report reviewed 16 studies that sought to identify the relationship between financial performance (annualized returns) and the use of ESG criteria in a “Responsible Investing” approach.  Their analysis and conclusions led to the following results:  10 (62.5%) of the studies found a positive relationship between Responsible Investing and financial performance, 4 (25%) of the studies were neutral, and 2 (12.5%) of the studies found a neutral-negative relationship.  No recent studies found a strong negative relationship.

Mercer also went back to an earlier report they had prepared in 2007 that had additional studies on this topic.  Between the current report and that prior one, they’ve reviewed 36 studies that looked at performance issues and Responsible Investing with the following results: 20 (55.6%) show a positive relationship between ESG screens and performance, 2 (5.6%) are neutral-positive, 8 (22.2%) are neutral, 3 (8.3%) are neutral-negative, and 3 (8.3%) show negative relationship.

In summary, the studies show clear support, and Mercer concluded the same, that social screening and ESG integration have either neutral or more likely positive effects on performance.

“We have shown that the results are leaning in favor of the value-added proposition of ESG integration, and we are encouraged to see more research considering the impacts across different asset classes (beyond equities) and the effects at the disaggregated level (such as sector impacts).”

 

Deutsche Bank Report

This report focused on what they describe as Sustainable Investing, first providing a history of the evolution in the approach from simple negative screens, to Socially Responsible Investing (SRI) which generally includes both negative and positive screens, and finally to what they describe as Responsible Investing (RI) which takes into account ESG factors in a more integrated fashion.

They reviewed primary and secondary research to determine correlation between ESG factors and positive financial performance (risk adjusted superior returns).  What was interesting to note is they found correlation between ESG integration and superior risk adjusted returns, but more so at the individual company level, not in the funds that seek to invest in those same companies.

“We do indeed find positive correlation in a majority of securities studies, particularly those that look at securities that rate highly with regard to CSR (Corporate Social Responsibility) and/or ESG.”

MSCI Report

The MSCI report focused largely on testing and analyzing different enhanced index portfolio designs with the use of various Environmental, Social, and Governance (ESG) factors.  They used their own proprietary Intangible Value Assessment (IVA) rating system to measure the relative performance of companies on ESG factors.  Because this was designed to analyze different enhanced index strategies, the research focused on individual companies and index funds created specifically for this analysis.  It did not compare to existing index funds, but only to industry benchmarks. The three strategies for an enhanced index design were 1) to exclude the companies with the worst ESG scores (“ESG Exclusion”), 2) to overweight those companies with the best ESG scores (“Simple ESG Tilt”), and 3) to overweight those companies with the greatest improvement in their ESG score over a period of time (“ESG Momentum”).   The results of the research are summarized in the below highlight from the report:

“Proponents (of ESG Investing) argue that markets do not efficiently price ESG factors because they address long-term risks that have not been absorbed by the economy, and that alpha generation is possible as markets begin to recognize these undervalued influences. Academic studies and industry analyses have supported both sides of this argument, although on balance they find that investors employing ESG factors do not impose a significant performance penalty, that investors can achieve comparable risk-adjusted returns to non-ESG tilted strategies, and that investors may be able to enhance their returns through the use of certain ESG strategies.”

References:

Lyn, Esmeralda O.; Zychowicz, Edward J.; “The Impact of Faith-Based Screens on Investment Performance.” The Journal of Investing, Vol 19, No 3 (Fall 2010), pp 136-143

Carpenter, Guy; Wyman, Oliver; “Shedding Light on Responsible Investment: Approaches, Returns, Impacts”, Mercer Investment Consulting, November, 2009

Fulton, Mark; Kahn, Bruce; Sharples, Camilla; “Sustainable Investing: Establishing Long-Term Value and Performance”, Deutsche Bank, June 2012

Nagy, Zoltan; Cogan, Doug; Sinnreich, Dan; “Optimizing Environmental, Social, and Governance Factors in Portfolio Construction”, MSCI, February 2013

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Founder | Walmark Pharmaceuticals

Adam and his brothers, Valdemar and Mariusz, created Walmark Pharmaceuticals with the aim of doing business with computers. However, with the opening up of markets they discovered that the sky was the limit as far as trading was concerned. Nevertheless, they had never wanted simply to shunt merchandise from place to place. Their aim had always been to supply added value, and so they built their own production plants in the Czech Republic and Slovakia.

Under the umbrella of Walmark, they created a drinks division (the Relax brand), a pharmaceuticals division (which produces and sells mainly food supplements and drugs), and an agricultural products division. However, the main driver was the vision of becoming the largest company in the sphere of food supplements in Central and Eastern Europe, which is why they decided to concentrate on the pharmaceuticals division. They sold the drinks division, downsized the agricultural division, and focused all their activities and resources on strengthening the pharmaceutical division and making further investments in the production of nutritional supplements and medicines. From Martians to Proenzi – the portfolio of their products now numbers 300 different items.

These days Walmark has subsidiaries in eight European countries and exports to more than thirty other countries. The entire group reports annual turnover of EUR 100 million.

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