Investments can do well — and do good — at the same time

Stewardship Kaleidoscope workshop speaker: ‘How you invest is a reflection of your witness’

by Chuck Toney for the Presbyterian Foundation | Special to Presbyterian News Service

James Carey of New Covenant Trust Company spoke this fall during a workshop at Stewardship Kaleidoscope. (Photo by Gregg Brekke)

Investors often think that their portfolio will suffer if they choose to invest according to their values — otherwise known as environmental, social, and governance issues.

James Carey and Brad Masters of New Covenant Trust Company disabused this notion during their presentation this fall at Stewardship Kaleidoscope in Portland, Oregon, an annual conference on stewardship and financial matters held jointly by the Presbyterian Church (U.S.A.) and the Evangelical Lutheran Church in America.

“You can absolutely do well while doing good,” Carey said. “There is no reason to sacrifice returns in pursuit of your values. You are not a different kind of investor because you care about environmental, social, and governance (ESG) issues.”

Furthermore, large-scale institutional investors like the New Covenant Trust Company (NCTC), a subsidiary of the Presbyterian Foundation, have stakes in the market that demand the attention of corporate leadership. NCTC currently has more than $730 million under its management. It often collaborates with a coalition of other faith-based investors representing more than $4 trillion, meaning that the ESG priorities of the fundholders are heard by corporate leaders.

“Companies are really paying attention to what institutional investors are putting into these (ESG) criteria because they do not want to be left out of these large investment portfolios,” Carey explained. “There is weight to the PC(USA) investment strategy that can create positive change.”

As a subsidiary of the Presbyterian Foundation and the Presbyterian Church (U.S.A.), Masters added, NCTC seeks to “support the work and mission of the church consistent with the values” of the denomination. “We help create and sustain healthy, vibrant ministries through the faithful stewardship of their investments.”

So, how can churches implement investment policies that support their values while also managing their funds effectively? Masters and Carey provided an overview of socially responsible investing procedures and a list of best practices for socially conscious investors. According to the Principles for Responsible Investment created by the United Nations, there are five categories of tools investors can use to drive positive impact through their investments. NCTC, in coordination with the committee on Mission Responsibility Through Investment and the Interfaith Center on Corporate Responsibility, uses each of these five tools, as outlined below, to drive impact through investment.

Negative screening

In this approach, investors divest their investments from “companies that are irreparably against your values no matter what changes they might make” in their management, Carey explained. Examples common for PC(USA) churches they have advised include the manufacture of assault weapons, management of for-profit prisons, nuclear weapons, and military contractors. “This is the last resort when we advise investors, because you lose your rights as a stockholder to influence management through proxy voting.”

Positive screening

This approach evaluates companies based on positive characteristics that align with the values of the investor. Airlines that are achieving climate goals and banks that support affordable housing and other community supportive programs are examples at NCTC. In 2021, NCTC launched a Diversity, Equity, and Inclusion strategy, highlighting companies that are strongest in these criteria:

• Board and management diversity
• Nondiscrimination policies
• Measures to promote equal opportunity and diversity
• Supplier standards, such as labor rights and working conditions
• Supplier standards, such as human rights, which include conflict minerals, right to clean water, treatment of indigenous peoples and their lands
• Climate change strategy
• Community involvement

Evidence has suggested that companies who consistently take these factors seriously may also be strong financial performers over time. “These characteristics are indicative of well-run companies that have held up through market volatility,” Carey said.

Impact (thematic) investing

This type of investing seeks to combine attractive risk and return profiles with an intention to contribute to a specific environmental or social outcome. “This is the most direct way to drive positive change with your investments,” Carey said. “Typically, in bonds or loans, you earn a return, but in this case it finances a project that has a direct, positive impact on a social or environmental issue.”

As an example, he cited the Green Advantage Program of Freddie Mac, which was chartered by Congress in 1970 to support the U.S. housing finance system and help ensure a reliable and affordable supply of mortgage funds across the country. This program provides financing for environmentally sustainable affordable housing, having now financed over 1,600 properties around the country — while maintaining a competitive return. “If your investment is going to be in mortgages, why not be part of a something that funds this kind of project?”

Engagement

This is the process of engaging directly with the management of companies to try to influence them to make changes in management that align with your values. In the PC(USA), these efforts are led by Mission Responsibility Through Investment, often in coalition with the Interfaith Center on Corporate Responsibility.

Proxy voting

This is a ballot cast by a single person or firm on behalf of a company’s shareholder. Often, an investor’s fund manager casts this vote on behalf of the investor. Stockholders also have the ability to bring resolutions to the annual meeting and have a vote taken; in many cases, management negotiates with the sponsors of the resolution to avoid a floor vote, resulting in the positive change desired by the investor. “Religious investors really invented the idea of using their billions of dollars to have an influence on the companies they invested in,” Carey explained, referencing religious investors’ early impact in pressuring U.S. companies who were doing business in South Africa during Apartheid.

Do’s and Don’ts for responsible investing

Masters and Carey provided the following set of recommendations for churches considering socially responsible investing. They and their colleagues at New Covenant Trust Company are also available to advise PC(USA) pastors and sessions.

The list of things to do:

• Work with a provider that focuses on responsible investing and impact.
• Ensure compelling investment merit in the portfolio, evaluate balance and diversification across geographies, styles and sectors.
• Document your investment goals and objectives, as well as your responsible investing criteria in a written investment policy statement, a best practice for governance, oversight and continuation as committees roll over.
• Otherwise follow typical investment best practices: focus on an appropriate asset allocation, don’t try to outguess the market, ensure equity exposure matches time horizon, minimize fees and expenses, and remain disciplined through market volatility.

They also provided a list of things not to do:

• End up over-concentrated in certain relatively green sectors such as technology and software.
• Change your investment approach just to access a “green” or “responsible” fund: active versus passive, concentrated versus diversified, high cost versus low cost, etc.
• Fail to ensure your fund managers vote proxies in accordance with your values.
• Ignore portfolio construction and performance. Responsible investing can and should be good investing.

Investing with socially responsible values in mind not only aligns with the PC(USA)’s stated values but is stewardship at the highest level: managing God’s gifts to us in ways that manifest our love of God, God’s people, and God’s glorious Creation.

“How you invest is a reflection of your witness,” Masters told those in attendance. “We’re all just trying to make the world a better place by keeping some things out of our portfolios and supporting those companies who support our values.”