The future of Impact Investment and the role of faith in driving it

Faith-based investors represent trillions of global assets under management (AuM)[1] and have a long history as pioneers in responsible investing through such strategies as shareholder advocacy as e.g. practiced by Women Religious in the 1970s, divestment, and negative screening. However, despite Faith-based institutions being among the original impact investors, faith-based investors, as a whole, have yet to pursue major impact investing portfolios.

For faith-based investors already deploying other responsible investing strategies, impact investing is a natural extension to continue deepening the impact their investment portfolios can achieve.[2] Given the vast wealth held by faith-based investors, activating their assets toward impact can lead to substantive contributions to both the Agenda 2030 and Paris Climate Agreement.[3]

We live at a moment when press releases from corporations, public institutions, and charitable foundations herald the arrival of a new just era. The enthusiasm for solutions that require limited or no financial sacrifices, or perhaps, even better, deliver “impact alpha,” are at an all-time high. We have reached the Golden Age of responsible investing, a time when even the world’s largest private equity investors are “among ESG’s most enthusiastic boosters ”. Unfortunately, there seems to be a profound disconnect between the intensity of the rhetoric and the relative lack of interest we see in the corners of the impact-first universe that require one to accept more modest financial returns.

The answer to the search of impact-first peers might be religion as in the case of the family office Ceniarth and as we shall explore in what follows.

Faith-based roots

Religiously-oriented faith communities of all creeds have long known that faith without action is empty. Intention without willingness to sacrifice for the good of others does little good. Hence, as we ponder the future direction of the impact investment movement, we would be wise to revisit its faith-based roots. The Nun Funds: The Original Impact Investors were amongst the very first to provide low interest loans to nascent community development finance institutions (CDFIs).

New Deeper Impact allocations within Faith-based Portfolios

While enthusiastic about various faith-based efforts, Diane Isenberg and Greg Neichin (2021) express soberness about the resource constraints and budget realities faced by many institutions in the sector.

In 2019 the Global Impact Investing Network (GIIN) undertook a project to deepen engagement with this faith-based investing community. The purpose of the engagement was to understand how to best support more conscious and deeper impact allocations within faith-based investing portfolios. The GIIN team did this through a Faith-Based Investing Survey.[4]

An ensuing GIIN (2019) paper outlines the following key insights from the Faith-Based Investing Survey, interviews, and convenings.

KEY INSIGHTS

According to the GIIN’s Faith-Based Investing Survey, 82% of the faith-based investor respondents target risk-adjusted, market rate returns, as opposed to 18% willing to entertain below-market transactions. This is understandable in a sector that has traditionally relied on the growth of endowment assets to fund grantmaking critical to providing community services or pensions.

Figure 1: Target Returns

Source: GIIN

Investment advisors and consultants specializing in impact investing do exist and are a growing group of service providers, however, they have had limited access to the faith-based investing community.

Uptake of impact investing has been limited (11% of AuM) though faith-based investors have a history of utilizing other responsible investing strategies, such as negative screening (88%). 2% uses biblically responsible investing, Christian faith-based investments with intended spiritual return strategies, and environmental screening.

While impact investments are available across asset classes and the risk-return spectrum, several faith-based investors interviewed by GIIN(2019) perceived impact investing as only available through private market investments or as generating below-market returns.

Faith-based investors often cited advancing human dignity and protecting the environment as values they use to guide investment decisions. These values align with commonly-pursued impact investing themes, including the United Nations Sustainable Development Goals (SDGs).

However, the commonalities between faith-based investors and impact investors’ interests in the SDGs suggest opportunities for collaboration to pursue shared social and environmental goals.

Evidence from the GIIN’s Faith-Based Investing Survey and 2019 Annual Impact Investor Survey also suggests that faith-based investors and impact investors are not yet aligning around shared interests. Faith-Based Investing Survey respondents stated a top challenge their organizations face in pursuing impact investing is finding investments aligning with their faith tenets and values.?

ENGAGEMENT STRATEGIES

Build the case for impact investing as a tool to further faith-based organizations’ missions and values.

GIIN(2019) Survey Respondents were asked what would help them or other faith-based investors to allocate more capital to impact investments. Over 50% of respondents indicated research and data on the financial and impact performance of impact investments and convening with and learning from other impact investors would be significantly helpful resources.

Figure 2: Support for impact investing

It will be important to engage influential faith-based investing peers and faith leaders in shaping this messaging and helping to disseminate this case for impact investing.

Equip faith-based investors with the means to access relevant impact investment products.

According to The GIIN’s 2019 Annual Impact Investor Survey, fund managers, who raise capital from faith-based investors, were asked about this experience. Similar to the Faith-Based Investing Survey findings, the top challenge cited by fund managers was that their fund did not target specific impact themes of interest to faith-based investors. A deeper investigation into these results is needed to determine what is causing this misalignment.

There could be a mismatch in the impact offered by fund managers and impact sought by the faith-based investors, so the development of new faith-based investor products may be needed.

Table 1: Fund manager challenges in raising capital from faith-based investors

Note: Data from the 2019 Annual Impact Investor Survey. Respondents ranked their top three challenges in raising faith-based investor capital. Total scores were calculated by giving top challenges a score of three, second-highest challenges a score of two, and third-highest rankings a score of one, then multiplying these by the number of respondents selecting each option.

Source: GIIN.

There are existing tools and resources that can be shared with faith-based investors on the technical aspects of impact investing. Common impact measurement and management (IMM) systems can guide faith-based investors in measuring, managing, and optimizing the impact of their investments. In addition, financial performance studies on impact investments can be utilized by the faith-based investing community.

Partner to amplify work and increase reach to faith-based investors.

In order to engage faith-based investors, it is advantageous to already be active in faith communities or to collaborate with other organizations trusted by faith-based investors.[5] Moreover, a number of faith-based networks have indicated that their members would like to learn more about impact investing. This interest provides an opportunity and entry point for partnership between faith-based networks and impact investing specialists looking to support faith-based investors in moving more capital to achieve positive, measurable social and environmental impact results.

The 5th faith-based Investment Conference: Scaling-up Opportunities and Partnerships

Geneva Agape Foundation who was actively involved in establishing FaithInvest , a unique global investment community of faith-based organisations for impact of faith-consistent investing, on January 21st 2022 organized a Conference on Faith-based investment aimed to initiate a shift in what has been a fast-growing movement, that of faiths and of their role and actions in investments aligned with their values.

During this 2022 edition, the Geneva Conference is opening an Agora, a hub, where diverse actors from international institutions and governments to faiths organizations and investment world key players come together to think syncretical about joint investment-related solutions to address the wounds of the world as expressed by the SDGs, in various Climate focused initiatives, in social impact enterprises.

The very rich Agenda was organized into 7 parts, including two parallel interactive working sessions as well as a closing keynote and a conclusion comprising summaries of the parallel workshops, Conclusions, Lessons and Next Steps.[6]

Opening remarks were provided by Dr. Nicoleta Acatrinei , Dr. Christoph Stückelberger , both from Geneva Agape Foundation GAF, Geneva; Dr. Isabel Phiri , Deputy General Secretary World Council of Churches, and Athena Peralta, Program Executive for Economic and Ecological Justice, WCC, Geneva; Dr. Martin Palmer Founder and Director of FaithInvest, and Nana Fran?ois , Director Membership, FaithInvest, London /UK and Timo Plutschinski , Director WEA Business Coalition, Hambourg/Germany. They all emphasized the need for a strong collaboration between Faiths and Finance to foster Sustainable Development, and more specifically, sustainable finance, of which impact investment is a rapidly increasing subset.

Part 1 of the conference moderated by Jean-Pierre Sweertz and Nicoleta Acatrinei focused on the role of regulatory bodies and international institutions in fostering sustainable development and most specifically, sustainable finance. Keynotes were provided by Christoph Baumann , Head of Taskforce on Sustainable Finance, Swiss Federal Department of Finance, State Secretariat for International Finance SIF, Financial System & Financial Markets; Eric Usher , Executive Director, UN Environment Program Finance Initiative and Nicholas Niggli , Initiator and Member of the Steering Committee at Building Bridges , Switzerland.?

Part 2 moderated by Athena Peralta and Obiora Ike focused on the role of faiths and religious institutions in questioning and shaping the role of finance in human society. The Keynotes were given by Dr. Isabel Phiri, WCC, His Excellence, Monseigneur Rey, Bishop of Fréjus-Toulon and Mgr Lionel Dalle, Vicaire général du diocèse de Fréjus-Toulon; His Excellence, the Bishop Prof. Dr. mult. Thomas Schirmacher Secretary General of WEA; Dr. Martin Palmer, FaithInvest and His Excellence, Metropolitan of Zimbabwe and Angola Serafim Kykotis.

Part 3 was devoted to a number of parallel Working Groups with active interaction from all participants with the aim of offering Solution sharing sessions devoted to Successful stories, Testimonies, Problems and Solutions as well as Best practices.

Part 4 moderated by David Brenner and Nicoleta Acatrinei focused on the role of Faith may/could/should play in financial markets and impact investing to deliver change: challenges and opportunities. Keynotes were provided by Catherine Wood , CEO ARK Invest; Archduke Imre of Habsbourg-Lorraine , CEO of ALITER; Robin John , CEO of Eventide and Tim Weinhold , Director, Eventide and Guillaume Taylor, Founder of Quadia .

Part 5 moderated by David Brenner and Timo Plutschinski focused on the role of the private sector such as investors, banks, multinationals and SME in driving sustainable economic activities, promoting SDGs, ESGs in aligning them with faith-centred values – scaling up opportunities. The Keynotes were provided by respectively Guillaume d'Alan?on, Aliter Invest , Geneva, Switzerland: "Building Investment funds based on the Catholic Social Doctrine " similarly to e.g. Meso Impact Finance . Other speakers were David Hoyme , Eventide Institute and Mason Tan , Providentia Wealth.

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Part 6 again provided all conference participants with an opportunity to actively join a parallel working group which each aimed at offering Solution sharing based on Successful stories, Testimonies, Problems and Solutions as well as Best practices.

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The conference’s Part 7: was yet another plenary session moderated by Nana Fran?ois and Dr. Christoph Stueckelberger with a focus on How Faiths are actually moving their money? Examples were provided by Dr. Rob Fohr , Director of Faith-based Investment and Corporate Engagement, Presbyterian Mission Responsibility through Investment; Dr. Bright Mawudor, Executive Director, AACC ( All Africa Conferences of Churches) and Rev. Fletcher Harper , Executive Director, Green Faith.

Closing Keynote of this very rich and insightful conference was provided by Prof. Paul Dembinski, Director, Observatoire de la Finance, Geneva with the title “Quo Vadis? The future of sustainable finance and faiths’ role in driving it.”

Conclusion

For millennia, faith organizations have been combatting societal concerns through their community outreach and programmatic work. In modern times, faith organizations are also leveraging their investments through divestment, negative screening, and shareholder activism to push for change they want to see in the world. Impact investing is another tool and powerful opportunity for faith-based investors to advance their mission, values, and financial goals. Through tailored messaging on the case for impact investing, practical guidance and resources on how to get started, and strategic partnerships, faith assets can be reallocated with deeper purpose. Thus, Faith-based organizations must mobilize to push the field of impact-first investing forward.

A shorter version of this article was published by on the 27th of March in the Impact Entrepreneur Magazine which can be found by clicking here: Faith and the Future of Impact Investing | Impact Entrepreneur

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[1] While no specific figure has been estimated for total assets held by faith-based investors, there is strong evidence that illustrates vast accumulation of wealth by faith organizations. Shonil Bhagwat and Martin Palmer report that more than 7% of the Earth’s land surface is owned by religious institutions (Nature, “Conservation: the world’s religions can help,” news release, September 2, 2009). The 2018 Global Islamic Finance Report estimated the Islamic finance industry at USD 2.4 trillion at the end of 2017 (Arabian Business, “Islamic finance industry grows 6% to be worth $2.4trn,” news release, June 14, 2018).

[2] For more information, Amit Bouri, “Why Impact Investing is a Natural Fit for Faith-Based Investors,” Financial Times, August 12, 2019.

[3] Engaging Faith-Based Investors in Impact Investing_FINAL.pdf (thegiin.org)

[4] Engaging Faith-Based Investors in Impact Investing_FINAL.pdf (thegiin.org)

[5] Engaging Faith-Based Investors in Impact Investing_FINAL.pdf (thegiin.org)

[6] https://gafoundation.world/en/events/conference/2022-conference/agenda