Faith based investing has become an increasingly popular approach for investors who want to align their investments with their religious, ethical or moral values. This investment approach screens potential investments based on faith-based principles and excludes companies engaged in activities that are not aligned with an investor’s beliefs. Key considerations include religious screening criteria, shareholder advocacy, community investing and actively managed faith-based funds. There are both benefits and limitations to faith based investing strategies compared to conventional investing. Overall, faith based investing provides a way for investors to pursue financial returns while also supporting their non-financial goals.
Common screening criteria for faith based investors across religions
Many faiths have guidelines or restrictions on investing in certain sectors or activities that go against their religious beliefs. Common screening criteria across Christian, Muslim and Jewish faith based investing include: – Exclusion of companies involved in alcohol, tobacco, gambling, pornography or weapons – Avoidance of abortion and contraception-related business activities – Exclusion of entertainment that is violent or denigrates family values – Avoidance of pork production and meat processing companies for Muslim investors – Exclusion of financial services that profit from interest for Muslim investors In addition to negative screens, faith based investors may also use positive screens to actively seek out companies that promote religious values like stewardship and community development.
Shareholder advocacy allows faith investors to influence corporate practices
Rather than just excluding companies through screening, faith based investors can use shareholder advocacy to actively engage with companies and influence their business practices. By filing shareholder resolutions and proxy voting, faith based investors can push companies to improve policies related to environmental practices, human rights, diversity, and alignment with values. Religious institutions have a long history of using shareholder advocacy to affect corporate behavior change on issues such as apartheid in South Africa.
Community investing directly aligns capital with faith principles
Beyond public markets, faith based investors may allocate capital into community development projects and organizations to achieve social impact aligned with their beliefs. This community investing approach directly funds initiatives like affordable housing, small business development, microlending and community services that improve socioeconomic mobility and quality of life, especially in underserved areas.
Actively managed faith-based funds integrate religious principles
For investors who want professional investment management around faith-based criteria, there are a growing number of mutual funds and ETFs that incorporate religious values into their investment process. These funds employ active stock selection, engagement and community investing while screening out objectionable business activities. This allows individual investors to benefit from faith based investing without having to directly research companies or file shareholder resolutions themselves.
Faith based investing allows investors to put their money and values to work in alignment. By screening out objectionable activities, using shareholder advocacy, directly supporting community development and investing in faith-based funds, investors can generate financial returns while staying true to their religious, ethical and moral beliefs.