Keeping the Faith: How faith institutions are supporting equitable impact
Faith-based and religious institutions have a long history of supporting impact investing. Much of the principles of modern-day impact investing come from the experiences of early religious investors, driven by their faith to improve society through their capital. The development of a robust investment market took time to materialize because most major religions prevented the investment of money for a return. When interest rates became more socially acceptable, faith leaders put restrictions around what was and what was not allowable in lending. Quakers in the 1700s actively invested in slavery abolition by banning their members from engaging in industries that were connected to the slave trade. Methodists restricted investments in activities that could “hurt our neighbor”, such as gambling and alcohol, but also more modern harms, like the chemical industry, which had harmful health effects. Islam prohibited any investments in things considered haraam, or forbidden, by the Qur’an, creating an entire Islamic financing industry.
As the investment industry evolved, faith-based investors evolved with it. The anti-apartheid movement was a watershed moment for impact investing, as divestment campaigns pressured companies and investors to stop their support of the oppressive South African regime. Faith institutions, led by groups like the ICCR, drove coordinated campaigns of divestment and used their collective power and influence to shift perceptions of Apartheid while also creating real economic pressure. (For a comprehensive look at the evolution of impact investing and responsible investing, check out this resource from the Harvard Business Review.)
Despite all of these positive influences from faith-based institutions, many of these institutions have done considerable harm, particularly when looking at the on-going legacy of slavery and racial injustice. Church congregants, of course, owned slaves and supported segregationist efforts. Dr. Martin Luther King, Jr. famously called 11am on Sunday “the most segregated hour in America.” But churches as institutions also were active players in slavery and segregation, with churches investing in the slave trade and owning slaves outright. Famous abolitionist Sojourner Truth was enslaved at one point by the Episcopal Church.
Today, many faith institutions are working to repair these harms and better live their values of love and kindness for our neighbors and our communities. I had the honor of co-leading a cohort of faith-based investors for the Global Impact Investing Network (GIIN), in which we walked through a set of steps to help them apply a racial equity lens to their investment strategies. These investors collectively manage several trillion dollars of AUM.
The work together over several months involved the cohort members exploring how to intentionally develop investment strategies tocreate equitable impact in the following ways:
- Power: Faith-based institutions are frequently white-led or rely on white asset managers. This should be no surprise given that the asset management industry is overwhelmingly white and male. Because people invest in people who look like them, this lack of diversity means faith-based investment dollars continue to support white institutions and communities. We asked participants to consider how they are shifting the decision makers in their organization towards greater racial equity. This included an analysis of policies and practices through racial equity audits, and supporting staff to take antiracism training. We also asked them to make a plan for diversifying their decision makers, such as their fund managers, investment committee and staff.
- Risk: Faith-based institutions can be particularly risk averse, given they represent large institutions which have, in some cases, been around for hundreds of years. Many have preconceived notions about what makes a risky investment, which often causes them to overlook investments that support entrepreneurs of color, given that these entrepreneurs have barriers to capital that require different capital mechanisms to overcome. We asked cohort members to analyze the diversity of their investment pipeline and look at how many fund managers of color were in their pipeline alongside entrepreneurs of color, and then compare this to who is actually receiving investment. Many practices actively exclude these groups, as white-led fund managers receive investments based on potential, where BIPOC-led fund managers receive investments based on proof, and we asked cohort members to create bias-reducing investment practices to help increase the diversity of the investment pipeline.
- Justice: Beyond these approaches focused on power and risk explicitly, we also took a broad-based approach to consider how the institutions were focused on actively supporting justice within communities. This involves engagement with communities of color to understand the next impact of investments in creating equitable outcomes, such as climate change mitigation strategies or actively advocating for racially equitable policies in government. Focusing on the end outcomes of the investment can help determine how institutions are bringing justice to right past wrongs, or further perpetuating harm.
One of the major takeaways the cohort participants had from participating in these conversations was that too many of them had been “hiding their light under a bushel,” to paraphrase scripture. Because of the size of assets and the general resistance to change within faith institutions, the cohort participants (and the faith-based investment community in general) have not been as proactive in leading others on adopting equitable investment practices.
Yet, because of their standing in communities and the (relatively) large size of assets, these institutions can be evangelists for equitable impact in investing. We ended the cohort discussions with a prompt to have the participants “be the light of the world” on this topic and get out to preach to others on what can be done to marry impact with investing and achieve greater alignment with their faith-based values.
Of course, you do not have to be a faith-based institution to also “be the light of the world.” All of the elements we discussed in this cohort apply to any investor or asset manager. You can learn more about the framework through the GIIN’s IRIS platform, or reach out to discuss how to apply equitable impact to your investing strategies.