“When the righteous prosper, the city rejoices…” Proverbs 11:10
ESG (Environmental, Social, & Governance) Investing is rising in popularity. This may be due to the investment industry driving the ideas, the consumer seeking to blend their values and investments, or an overall growing social conscience especially when it comes to money. Regardless of the reasoning, this is growing beyond a fad and for good reason.
So, what is ESG investing and its little brother Impact Investing? Then what is Christian ESG investing, why is this important, and how do you implement it? There are a lot of questions, a little confusion, and at times a well-earned suspicion of the investment industry. In short, ESG investing is aligning your investments with a set of values. For the Christian investor, ESG investing is following Biblical guidelines to align your investments with your faith. These definitions are for individual security selection and should not be confused with a full investment method. A further explanation is needed...
What is Christian ESG investing and why is this important.
The basic Investopedia definition of ESG Investing is: “Environmental, social, and governance (ESG) criteria are a set of standards for a company’s operations that socially conscious investors use to screen potential investments. Environmental criteria consider how a company performs as a steward of nature. Social criteria examine how it manages relationships with employees, suppliers, customers, and the communities where it operates. Governance deals with a company’s leadership, executive pay, audits, internal controls, and shareholder rights.” Socially responsible investing is similar and was the precursor to ESG, now falling under that umbrella along with sustainable investing and impact investing.
Typically, there is either negative or positive screening. A negative screen seeks to remove companies from an investment group based on certain criteria (for example, removing a company due to environmental abuses, their social stances, or a leadership vs. employee rights issue). A positive screen includes companies that “do good” work based on the investor’s criteria (for example, including a solar or wind farm company, a water purification lab, or micro-financing bank).
Currently, ESG investing is as broad as the sky is wide in the United States, and there are a lot of “lipstick on a pig” investments with nothing more than an ESG label. In the last 5 years, interest in this space has grown as well as investment options. However, the definition has grown opaque.
Yet, the Christian seeking a clear foundation has a source to turn to: the Bible. God’s word gives us great instructions in this space. Even if we disagree on some topics, there are foundational verses that we can all agree on.
Our working definition of Christian ESG investing is investment selection guidelines utilizing Biblical environmental, social, and governance criteria to screen potential investments.
- Environmental: Genesis 1:26 “Then God said, ‘Let Us make man in Our image, according to Our likeness; and let them rule over the fish of the sea and over the birds of the sky and over the cattle and over all the earth, and over every creeping thing that creeps on the earth.” We are stewards of the earth. God put us in charge. We see this clearly in His word, in history, and our own experience. We see the cause and effect of our individual and collective actions. Because we are stewards, we have the full authority to act and the responsibility for the results of our actions. As stewards on behalf of God and co-creators with God, we should explore, innovate, and build throughout His creation. Yet, while we do this, while we dream and build big, we should care for the environment, conserve the land, protect animals, and restore what is damaged. And within our investments we should do this with the wisdom and common sense that God has given us; trusting and working within His design for creation by supporting companies that at least do no harm to, repair the damage done to, and/or enhance the environment around us.
- Social: Genesis 1:27 “God created man in His own image, in the image of God He created him; male and female He created them.” Each person is made God’s image. This is magnificent, wonderful, and mysterious. Therefore, all people should be respected, encouraged, and given an opportunity. Each of us has authority and responsibility as an image-bearer. We answer to the Original, as we represent Him. In investing this means that we should at least exclude companies that harm people. We should not invest in companies whose actions, products, or services lead to slavery, addiction, death (of the born or unborn), abuse, or entrapment. Recognizing that people are made in God’s image also causes us to see the good work that is done. This broadens our definition of Impact Investing to include what many may consider mundane. For example, a building supply company helps build the community around them. A carpenter, a roofer, a painter, and plumber build a house that someone makes a home. This is valuable and good work ordained by God. We believe that this also supports the idea that a free economy is the best system for growth and innovation because we can trust people as image-bearers of God to create goods and services that are valuable to others, provide jobs for workers, and profit for the owners. This builds upon itself as investment risk may be rewarded with returns.
- Governance: Romans 13:1, 4 “Every person is to be in subjection to the governing authorities. For there is no authority except from God and those which exist are established by God…for it is a minister of God to you for good.” Governments, businesses, and community leaders are put in place by God. When you look into history and maybe your own experiences, this can be a controversial statement because there have been some unbelievably wicked leaders in history and that still exist today. Therefore, how can we understand this verse in the context of investing? First, the Bible clearly states that God puts leaders—both good and bad—in charge. He did this for our good and His purposes. We must realize that His big picture is far too big for us to fully understand. If we challenge God’s authority to put leaders in place, we assume His role which will only lead to our heart-ache. However, He allows us to participate in the process. This is one of the great blessings of the United States. We vote for our government leaders. We can leave a company if we don’t like its direction, by not working there or selling its stock. And we can work within our communities as leaders or to properly challenge the leadership. In investments and the economy, our rule of law is enormously valuable. By this, we govern the creation of goods and services, define and protect the value of ownership, and seek to create stable markets to invest within. The leadership that God puts in place lead and allow for the creation of so much of the good that we have in life. Therefore, as investors, we should seek governance that best reflects God’s design. And by doing this we often find some of what we believe to be the best investments.
How do we effectively deploy Christian ESG investing?
When discussing the “how” we must remember that the Bible is a 2000-3000 year-old book. It is still God’s word and applies to us today. But it was written in an agrarian and a small market society. There were no corporations or financial markets as we know them today. Therefore, we apply the truth of God’s word, understanding the truth in the context that it is written, and applying that truth to the financial markets that we live in today. It is not always easy… So, we believe that we should hold our faith strongly, but hold these “rules” lightly, meaning that we are not rigid, legalistic, or condemning in applying these Biblical screens.
Along with good screening, we wanted to demonstrate the Christian ESG investments could be profitable (this is, after all, the primary reason for investing). Therefore, we asked the investment team at WealthShield to build an Index demonstrating the potential performance of these investments. The results are outlined in this paper, FAITH-BASED INVESTING INDEX.
In this Index, the team starts with 500 of the largest US publicly traded companies and applies a negative “S and G” screen provided by the Biblically Responsible Investment Institute (briinstitute.com/screens.htm). This screen removes companies whose products and services we believe are harmful to people, as defined by the Bible so that we:
- Defend justice and mercy for the defenseless.
- Defend justice and mercy for the poor.
- Have compassion for those addicted to or engaged in alternative and harmful lifestyles.
- Protect the institution of marriage and the family.
- Search for and include companies that are recognized for philanthropy, leadership, ethics, citizenship, and other exemplary activity.
Note: For testing purposes, we wanted as much historical data as possible, in this case, data dating to the year 2000 was available from BRII. However, environmental (E) screening was not. Therefore, for our clients’ investments in the future, we intend to apply an additional screen provided by Inspire Insight (inspireinsight.com) which gives us an environmental screen and an overall Impact Score regarding ESG.
In this Index, we also wanted to demonstrate the potential results of our rules-based investment methodology. We believe that we honor God with excellent money management as much as investment selection, so we should chase great results. Our rules-based approach was developed by WealthShield and is outlined in this series of whitepapers that you can find here:
- The Investment Framework: Market Valuations - VALUE MATTERS
- The Investment Framework: Market Sentiment - THE TREND IS YOUR FRIEND
- The Investment Framework: Economic Growth - IT'S THE ECONOMY...
In short, this is a data-driven investment approach where we use math and measurements to help us make decisions and align our clients’ investments with “what’s going up.” Sounds simple huh? In reality, it is a little more difficult and risks of losing still exist, but we believe that we can align our investments with companies that do good work, that do not harm people or the environment and apply proprietary investment methods to seek great results. Our goal is to honor God and serve people by helping them reach their financial goals and live fulfilled lives while chasing Jesus Christ.