Faith-Based Investing, Stewardship, and Sustainability through Comparative Lenses

In an article published in the Erasmus Law Review, I examine how faith-based investing addresses sustainability to better understand its potential as a pathway to sustainability. To do so, I examine three dimensions of the approach of institutional religions to sustainability through faith-based investing, namely the underpinning religious values and principles, the legal and regulatory framework governing faith-based investing, and investment stewardship. While there is conceptual alignment among the underlying values of faith-based investing and sustainability, there are differences among the legal and regulatory frameworks and investment stewardship approaches which impact their interplay with sustainability.  

Faith-based investing has grown rapidly alongside conventional investing.  A key impetus driving faith-based investment is a desire to align investment choices with religious beliefs on the basis that purchasing and using resources in the market have moral and economic dimensions. Concurrently, the emergence of the concepts of sustainability, sustainable development and sustainable finance supports the need for new paradigms to address various social, economic, and ecological crises, which includes the role played by faith-based investing in responding to these concerns.

The analysis in the article focuses on Catholic, Church of England, and Islamic faith-based investing as illustrative examples on the basis of Christianity and Islam as the largest and second largest religions in the world and their common tradition as Abrahamic religions. Further, in view of the jurisdiction-specific nature of the law and regulation governing investment activities, the article centres on the US, UK, and Malaysia where Catholicism, the Church of England, and Islam respectively have an active presence.

The article first briefly discusses sustainability, sustainable development and sustainable finance. It then situates faith-based investing within the universe of socially responsible investing and ESG investing. It next examines the underpinning values of the love of God and neighbour, the role of man as steward over the created order, a holistic concept of development beyond the economic dimension, the importance of preserving natural resources and maintaining the ecological equilibrium as espoused by these three religions. In doing so, it illustrates areas of conceptual alignment among these values in faith-based investing as well as with the universal call to action to end poverty, protect the planet and ensure that all will enjoy peace and prosperity expressed in the UN Sustainable Development Goals.

The subsequent discussion analyses the legal and regulatory frameworks governing faith-based investing in the US, UK, and Malaysia. There is a continuum in terms of the law and regulation governing faith-based investing. The extensive reliance on soft law and guidelines which function as private standard-setters eg those issued by the US Conference of Catholic Bishops in the US context, is contrasted with the specifically tailored law and regulation for Islamic faith-based investing in Malaysia, with implications on the certification of faith-based investing. The usage of private certification mechanisms in the US and the UK allows for flexibility in the interpretation of religious principles in investment decisions, but is also more susceptible to divergences between religious precepts and investment choices.

The article next appraises the investment stewardship approaches in faith-based investing, conceptualising these approaches as a bridge which links the abstract values discussed earlier with tangible actions to lead towards sustainability. In this respect, the investment stewardship approaches featured here consist of screening, monitoring and engagement, and divestment decisions. While there are commonalities among screening practices in terms of excluding ‘sin stocks’, the content of each’s faith investment screens differ, with Islamic faith-based investing also considering the capital structure of the investee company. Furthermore, where Catholic and Church of England faith-based investing encourage monitoring and engagement, Islamic faith-based investing does not emphasise these practices.

The positive performance of faith-based investment funds presents opportunities for further development, although such funds tend to be more expensive as a result of the dual layers of research required to determine investment potential and the satisfaction of religious criteria. The growth of faith-based investment is also linked to impact investment and sustainable finance. Nevertheless, a significant challenge in faith-based investing advancing sustainability arises from the interaction between political and religious beliefs in investment choices. It has been shown that views on climate change among US Catholics vary by political affiliation, race and ethnicity, and age despite the position taken by the Pope that climate change is a moral issue. This political gap on climate change resonates with the rejection of ESG and its dismissal as ‘woke’ ideology by US conservatives. Despite the disconnect between faith and climate change as an issue among certain quarters , there are efforts to bridge faith and climate change at the global, regional, and national levels.

In conclusion, faith-based investing is an expression of individual, institutional and financial autonomy bounded by a combination of legal and social limits arising from the values and teachings of a particular faith which has potential in advancing sustainability. There are many areas for growth amid faith-based investing’s movement from a marginal to mainstream presence. The collective buy-in of believers who recognise and respond to the call of living out fundamental faith values in investment decisions has the power to enable societal change and better preparation to meet current and future challenges.

Petrina Tan Tjin Yi is Postdoctoral Fellow, EW Barker Centre for Law & Business, National University of Singapore.