Part 4 – A Pragmatic Approach to Aligning Your Investment Strategy to the Catholic Faith
In part three of this series we explored the Catholic Church’s Socially Responsible Investment Guidelines, framing them as an alternative to ESG approaches for Catholic investors wanting to align their investment portfolios with the Social Justice Doctrines of the Catholic Church. Which brings us to the final part of this series in which we address the pragmatic aspects of the process. How would an investor go about implementing the Guidelines in their portfolio? How could this work, pragmatically?
We use the word “could” intentionally; the pragmatic implementation of the Guidelines will vary from investor to investor depending on, among other factors, the size of their portfolio, their investment objectives and emotional risk tolerances, and their interest in, aptitude for, and amount of time they can devote to the underlying investment research required to implement them. But first, an investor must decide how they will interpret the Guidelines, which contain a number of ambiguous phrases.
For example, the Guidelines restrict investments in companies that derive “a significant amount of revenue” from certain activities. What one investor may deem significant, another investor may deem insignificant. Consider retail chains such as Walgreens, CVS, Target, and Wal-Mart, all of which sell condoms; though their overall sales revenue from such items is less than 1% of their total sales, is that enough to disqualify them from an investor’s consideration? As Guidelines, not prescriptions, rules, or mandates, the U.S. Conference of Catholic Bishops allow the individual investor’s conscience to inform their interpretations, and those of course, will vary.
Once an investor has interpreted the Guidelines and established a clear set of criteria in the areas that are left open for flexibility, they are confronted with a tangled web of data, not all of which is informational, making it extremely difficult to achieve the clarity desired to clearly rule in or out certain investments. For example, companies release a variety of reports, some obligatory, some voluntary, that often touch on, but don’t directly address or clarify their policies or actions in key areas of concern for Catholic investors, and the opportunity for most investors, other than the largest who wields significant clout, to query the company to gain a deeper level of clarity, is simply not realistic.
With that said, there are a number of resources investors can access that, when evaluated as a whole, can provide the investor with a mosaic of the company from a Catholic investing perspective. Investors should start with the company’s website, looking specifically for sections relating to their products or services, their environmental, supply chain, and human capital policies and practices, and how the corporation is governed. Investors can find additional information in the company’s annual report, and if the company publishes one, their sustainability report, both of which are published under the Investor Relations section of their website.
Once an investor has accumulated the company-provided information, websites such as ChristianInvestingTool.com can augment their understanding of the company’s policies and practices, including in some cases, their political support. ChristianInvestingTool.com is the individual investor-facing portal built on the eValueator.com platform, which is oriented towards the financial advisory community. ChristianInvestingTool.com provides a limited number of reports, but for investors managing their own assets, a subscription to eVALUEator.com can unlock a depth of clarity for mutual funds and for individual stocks that would otherwise be inaccessible to them. A simple Google search for “Biblical investing screening” will provide a list of resources an investor can use, almost all of which are non-Catholic Christian tools that closely mirror the Guidelines.
As investors spend more time assessing companies from a Catholic perspective, they’ll find that certain industries tend to be much more problematic than others, and that some industries may fall outside their criteria all together. For example, many media companies, including cable television companies, movie studios, video game publishers, and music companies produce or distribute objectionable content like pornography, horror / paranormal movies and games, or other media that generally demeans the human person, undermines their dignity, or otherwise tempts its consumers to engage in immoral conduct. Investors may find certain social media companies to violate their criteria if their platforms easily lead their users to harmful or habitual behaviors, mental health difficulties (think Instagram and teenage girls), or otherwise expose users to interactions that fail to support the dignity of the human person.
The health care sector is another example of widespread conflict. Biotechnology and pharmaceutical companies may develop and sell contraception and abortifacients or may utilize embryonic stem cells or fetal tissue from sources that violate the Catholic Church’s clear position on the moral limitations of medical scientific research. Companies may tout their adherence to the NIH Guidelines for Human Stem Cell Research, but these guidelines do not meet the Catholic Church’s moral limitations, noting that “irreconcilable” differences exist between the NIH Guidelines and various religious objections. For-profit hospitals likely perform surgical procedures that violate human dignity, and health insurance companies may promote the same objectionable drugs that make certain pharmaceutical companies unpalatable.
The travel and leisure industry contains a number of companies that cater to the communities that embrace unhealthy and undignified definitions of human sexuality and gender identity, and many go so far as to sponsor events and celebrations around the world promoting these lifestyles. Hundreds of companies signed the petition supporting the so-called “Marriage Equality” act, while others have adopted employee benefits that reimburse an employee’s costs procuring an abortion, including travel costs if they live in a state where the procedure is illegal and the employee travels to another state to have one.
In an effort to provide some context and clarity, at the risk of self-promotion, we can use a specific example of our own approach to how we delineate between permissible and impermissible investment options: we avoid companies that directly engage in certain activities, but do not automatically avoid companies if they provide products or services to companies that we avoid. For example, we may own a company that develops and sells bioprocessing equipment that filters and purifies biological drugs for the biotech and pharmaceutical industry, even though some of their equipment may be used by their customers to filter and purify biological drugs that were developed using embryonic stem cells.
In other words, we have chosen to avoid direct involvement with objectionable companies, but do not automatically eliminate companies that may indirectly support objectionable companies. We determined that if we also eliminated indirectly supportive companies, we would not, for example, be able to own stock in a company that provided transportation or logistics support, electricity, any information technology hardware or software, accounting services, banking services, or any other business service to the directly infringing company. In addition to being virtually impossible to verify (companies don’t list their partners, in many cases for competitive and security reasons), if employed consistently and without exception, such a policy would effectively eliminate virtually every possible investment our clients could conceivably avail themselves of. When weighing the benefit and importance of being able to save and invest one’s earnings over time to support themselves after retirement against the possibility of indirectly supporting immoral activities, we concluded that the moral good that arises from investing outweighed the impossibility (and potentially the scrupulous practice) of avoiding companies, both directly and indirectly, based on the Guidelines.
Avoiding certain sectors or companies, however, is only one action investors can take when aligning their portfolio. Investors should, to the extent they can, engage with companies to advocate for morally beneficial policies and actions. For individual investors, this primarily takes the form of voting proxies, which every investor has an obligation to do. Companies, annually, must submit a number of matters to shareholder vote and/or approval. Often, proposals are made, either by management or by other shareholders, that support or conflict with Catholic morality, and as such, investors are expected to use their voice, regardless of how small or quiet, to advocate for positive change and resist harmful or immoral policies. Stock ownership makes the investor an owner of the company, which, on the basis of prudent stewardship, involves oversight and advocating for goals beyond just profit, something individual investors can do most easily through the proxy voting process.
For investors that either don’t want to or don’t have the resources to invest in a diversified portfolio of individual companies, they can use Catholic values ETF’s and mutual funds. The MSCI Catholic Values Index ETF is just one example of a passive, index-based ETF that takes the MSCI ESG index and overlays additional restrictions based on products or services delineated in the Guidelines. This particular ETF excludes predatory lending (which many ESG funds already eliminate), companies that use embryonic stem cells in their research, provide or sell abortion / abortifacients, contraceptives, and adult entertainment. This particular fund also excludes conventional weapons makers, alcohol, nuclear power and fossil fuels, so investors will need to study the specific criteria of any fund they are considering and determine whether the fund in question aligns with their own interpretation of the Guidelines and supports their own conscience.
Most of all, investors should use common sense when making their investment decisions. They must accept the fact that they are working with imperfect information and knowledge and focus on what they can control, to the best of their ability. The challenges a Catholic investor faces do not exempt them from making a concerted effort, rather, they excuse the investor from perfectly avoiding immoral investments.
Finally, if investors are working with an investment adviser, they should feel comfortable making their desires known and expect their advisor(s) to honor and implement their desires and preferences; any client-focused, competent advisor will accommodate sector and stock restrictions. Today’s analysis and trading technology is powerful enough to facilitate customized portfolios for individual clients without much additional effort. And if their advisor won’t, or claims they can’t, accommodate their desires and preferences, there are dozens who will, some of which are listed on the Biblical investment screening websites we alluded to.
If you have any comments, thoughts, or questions, please leave them here or reach out. We’re always happy to help.
