These days, few people look forward to checking on their investments — with the stock market down more than 35 percent from a year ago, it's inevitably bleak news. But Brenda J. Reish, executive director of student and business services and treasurer at Bethany Theological Seminary in Richmond, Indiana, received some good news a few months ago. During a conference call with the board's investment committee, their investment manager commented that several of Bethany's funds performed a bit better than the indexes during 2008 (which was, of course, a terrible year for investments). It was encouraging news because Bethany pursues a "socially responsible" investment policy. Affiliated with the Church of the Brethren, the school follows an investment strategy that screens out certain investment opportunities that clash with denominational values.
Socially responsible investing has been around a long time, spearheaded by religious leaders and lay people who have wanted to avoid doing business with companies or industries at odds with their beliefs. It grew in popularity during the 1980s, when a movement to protest apartheid in South Africa spurred North Americans and Europeans to divest from that country's economy.
In the last decade, a growing number of investors have recognized the social and environmental impact that socially responsible investing can have, such as improving labor practices, combating discrimination based on race or gender, reducing pollution, and improving corporate governance. Furthermore, money managers have offered more investment vehicles and fund styles that allow for different definitions of "socially responsible." Perceived benefits, increasing flexibility, and timely issues like climate change and the crisis in Sudan helped socially responsible funds increase more than 18 percent between 2005 and 2007, according to the Social Investment Forum, a national trade association. That compares to just a 3 percent increase in professionally managed assets as a whole during the same time.
Assets grew despite a commonly held belief that investors interested in social or environmental benefits have to settle for less-than-market financial returns. Examples like Bethany Theological Seminary's portfolio suggest the opposite may occur. "In this economic downturn, it's some of those socially responsible investments that are outperforming the market, whether you're talking about green technology or alternative fuel or loans to nonprofit organizations," says Chris Andersen, executive director of the Lutheran Community Foundation, a pan-Lutheran foundation that works with congregations, institutions, and individual investors.
While theological schools have not been at the forefront of socially responsible investing in recent years, many boards and administrators of these institutions—and faculty, too—recognize that they can do good not just by sending graduates into the world to pursue ministry and scholarship, but by moving their money into investment vehicles that align with their values. "It's the old idea of practicing what you preach," says Father Joseph Schner, a Jesuit priest who is president of Regis College, a Catholic theological school in Toronto.
There are three main types of socially responsible investing:
- Screening
Screening is by far the most popular, both among seminaries and general investors. Some theological schools have long avoided investing in certain companies or industries—most commonly alcohol, tobacco, gambling, weapons, and pornography. Bethany, for instance, screens out companies that receive major military contracts and those that receive more than 10 percent of their gross revenue from Department of Defense weapons contracts. The seminary also avoids investing in companies that make more than a tenth of their gross revenue from the manufacture or sale of alcohol, tobacco, or gambling devices. "It's very important for us to be consistent with our denominational beliefs where investing is concerned," says Reish, the school's treasurer. "We want to be clearly and unequivocally recognized as a Church of the Brethren seminary."
President Dwayne Uglem of Briercrest College and Seminary, a nondenominational, evangelical school in Caronport, Saskatchewan, points to student interest in social responsibility. "Issues such as fair trade and labor practices are far more important to our students than you might at first think," he says. And he adds that personal connections recently have helped shape the school's investment focus as well. A Briercrest faculty member who spent 20 years in Congo has firsthand knowledge of how African people have been harmed by mining for the raw materials that go into cell phones and other consumer electronics; he shares his knowledge with the president and board. "All of us have been led to think more carefully about the implications of our lifestyles and our actions, and that translates to our investments," says Uglem.
- Shareholder advocacy
A second aspect of socially responsible investing—shareholder advocacy—is less often a direct part of theological schools' investment strategies. Father Schner of Regis College says that while some of his faculty have been involved in advocacy such as filing shareholder resolutions, those actions usually happen under the umbrella of the larger Jesuit province that includes the school. Likewise, other schools participate in advocacy only through the university of which they are a part-or through denominational foundations like the United Methodist Church Foundation, the Christian Church Foundation (Disciples of Christ) or the United Church Foundation. These groups participate in the Interfaith Center on Corporate Responsibility (ICCR), an association with 275 member funders. "Shareholder advocacy takes a lot of time, so ICCR does a huge service to the larger faith-based community that wants to do good," says Byrd Bonner, executive director of the United Methodist Church Foundation. "They provide an incredible amount of guidance and support."
- Community investing
Community investing directs capital from investors to communities underserved by traditional financial services. Among theological schools, this is an uncommon strategy for socially responsible investing—for example, just a fraction of a small, self-selected group that responded to an online questionnaire from In Trust reported that they use socially proactive banks. These smaller banks often have policies to make loans and credit available to community development efforts such as low-income housing and other community services.
Policies and challenges
Some seminaries, including Bethany, specifically address socially responsible investing in their official investment policies. Others follow denominational policies, like the United Methodist schools. Guidelines in the Methodist Book of Discipline instruct church institutions to "make a conscious effort to invest in institutions, companies, corporations, or funds whose practices are consistent with the goals outlined in the Social Principles." That gives them some room to navigate how they'll make individual investment decisions. Still others, such as Briercrest, simply advise their fund managers on the characteristics of the investments they want to avoid or pursue.
There are, of course, special challenges with socially responsible investing. One is how to discern which companies to avoid and which to embrace. And there are plenty of ways to slice and dice a company. "Corporations do a lot of good producing products that enhance our lives, and they contribute to the economy and society," says Linda Valentine, executive director of the General Assembly Council for the Presbyterian Church (USA). "Do you rule out a corporation entirely because of one issue when it does a lot of other things that are helpful?"
Valentine, who spent years working in the corporate sector as well as at a Christian nonprofit investment fund, points to the complexity of the issues. "You're not just looking for bottom line returns; you've got a double bottom line—the impact you're making with your investments as well as the financial return."
Another very real challenge is the amount of resources boards are willing to devote to socially responsible investing. "First and foremost, a theological school exists to educate and engage in theological study and discourse. It can't solve all the issues," says Valentine.
Chris Andersen of the Lutheran Community Foundation agrees. "It takes time. It's another layer of criteria in your investment portfolio. What's really critical is linking your investment decisions to your mission."
Theological schools that are committed to socially responsible investing say that their ethical commitments take priority over other concerns. "We set a course, and we're going to stay the course both with investment allocation and policy," says Bethany's Reish. "Even if Bethany was facing a large financial loss, we wouldn't consider it an issue with our screens as much as with a particular account."
"Stewardship is not subject to the state of the economy," says Byrd Bonner of the UMC Foundation. "The same good stewardship principles apply whether we're in the peak or the valley or somewhere in between. I would no more advocate a change in asset allocation or investment strategy because of an economic downturn than I would when the market sees a 20 or 25 percent gain in a year."
Perhaps ethical investment policies can even serve as a lesson for students who will eventually move into positions of leadership. "My hope is that as a learning institution and a learning community, the way we do school and business is part of the education," says Briercrest's Uglem. At Briercrest—and at many other theological schools, as well—how to use money is part of the education.
Advice from the experts
Seminary boards that want to focus more carefully on how their investments are aligned with their institutional values face myriad concerns. What kind of strategy will make the biggest social or environmental impact? How do you safeguard your financial returns? How do you even start the process of delving into socially responsible investing? Four professionals share their advice.
- Start small; take your time
"It's not necessary to put your entire portfolio in socially-responsible investments overnight," says Chris Andersen, executive director of the Lutheran Community Foundation. "Start where you feel the most comfortable." That might mean, for instance, only investing cash deposits in socially responsible funds. Andersen points to the More for Mission campaign (www.moreformission.org), which challenges foundations to put 2 percent of their endowments into socially responsible funds. While foundations currently have about $2 billion invested in socially responsible investment vehicles, if all of them followed the 2 percent goal that number would jump to $12 billion. "The hope is that 2 percent is a beginning," Andersen says. "That's probably a reasonable goal for seminaries, too."
- Recognize there will be differences of opinion
"If you have 10 different people in the room, you can get 10 different ideas of how to do socially responsible investing." says Laurance R. Hoagland Jr., vice president and chief investment officer of the William and Flora Hewlett Foundation. "I've seen situations where you have a very functional board of trustees that is very open to discussion of the issues, but when you have social investing on the table, the whole process can splinter."
Byrd Bonner, executive director of the United Methodist Church Foundation, suggests one way to deal with this potential conflict: Invite the seminary's chaplain or a hand-picked professor to lead a discernment exercise for the investment committee or board on the responsibilities of the institution in making a better world. "I suspect they'd pretty quickly come up with areas for socially responsible investing, whether they are economic justice, the environment, or marginalized persons. Once they come up with commitments like those, it's possible to craft policy.
- Get outside help
Many denominations have committees or offices dedicated to stewardship and investment issues: The Presbyterian Church has Mission Responsibility Through Investment (MRTI) and Mennonite Mutual Aid coordinates investment research, screening, and shareholder activism for Mennonite Church USA and other Anabaptist denominations. Beyond that, the Interfaith Center for Corporate Responsibility (www.iccr.org) coordinates shareholder activism for more than 275 religious organizations, including religious communities, health systems, pension boards, and denominations. And organizations like the Social Investment Forum (www.socialinvest.org) and the Community Investing Center (www.communityinvest.org) offer guidance, support, and information both for veterans of socially responsible investing and those new to the scene.
- Question the assumptions and remember your values
With the market in particularly bad shape these days, it's tempting to rule out socially responsible investing, assuming that the strategy compromises financial returns. After all, screens do limit your potential investments. "It is easy to say, 'We can't do socially responsible investing because we can't compromise financial returns,'" says Linda Valentine, executive director of the General Assembly Council for the Presbyterian Church (USA). "But studies say they don't have to compromise returns," she insists. In fact, the Social Investment Forum awards the annual Moskowitz Prize for outstanding research in this field, and many studies have found a correlation between good governance, good business practices, and good financial returns.
"It's important to look at the facts and be clear about your mission and your principles in constructing and implementing your investment plan," Valentine adds. "The Bible says a lot about how we use money and what our responsibilities of stewardship are. And if investing has consequences that are contrary to the fundamental beliefs and principles of the institution, there's a disconnect there. At minimum, I think trustees need to have an awareness of the impact of their investments."