Impact Investing and Religion: Faith that Works

Impact investors from around the world recently convened for the Vatican Impact Investing Conference, where they addressed a broad range of impact investing strategies. The gathering, one of the largest of its kind, reflects the broad momentum of faith-based investing.

Morningstar tracks about 100 faith-based mutual funds, reflecting the breadth of faith-based investing strategies. Nearly every major Christian denomination has its own set of socially responsible investment guidelines. Over the course of several decades, faith-based organizations like the Interfaith Center on Corporate Responsibility, or ICCR, have helped shape the current state of impact investing. With their help, the sector has evolved from issuing socially responsible investing guidelines in the 1970s, which were mostly aimed at avoiding investments in certain types of ”sin stocks”, to promoting positive screening that invests in companies with the best social and environmental practices across all asset classes. Faith-based organizations have long been an influential force in the impact investing market and continue to play a crucial role as it becomes more widely embraced.

Faith-based investors played a pivotal role in our own founding. In 2003, MEDA (Mennonite Economic Development Associates) partnered with CARE and SEED Capital as the initial owners of MicroVest. MEDA has a record of pioneering impact investing projects dating back to the late 1940s. At that time, a group often referred to as the “peace churches,” including the Mennonites and the Society of Friends, or Quakers, stood out for refusing to invest in businesses tied to war, slavery, tobacco, gambling, and other activities inconsistent with their values. Through impact investing, they have a means of promoting these values, as they do in supporting our own objectives of increasing financial inclusion on a global basis. It’s the modern version of religious antipoverty efforts that go back centuries, informed by theological support for aiding the poor, often with a pragmatic dimension.

That was made clear to me several years ago when I spoke with the Mennonite operators of a large, profitable potato farm in western Canada. They told me that, “every year we’ve sent a tractor down to Latin America. This year instead of giving away a tractor, we’re going to invest in this financial inclusion project and help many more farmers afford to finance their own equipment.” Many of the faith-based investors we work with are very interested in microfinance and small business endeavors that have a strong social justice focus. It often complements their own NGO work at the grassroots level, since quite a few of them have orders or mission groups in places like Haiti, the Congo, and Pakistan. They intuitively understand the multiplier effect of improved financial inclusion.

Regardless of doctrine, at the core, faith-based investors are vital to impact investing because, on an emotional level, in any religion the higher power wants us to lead full lives, so that we can be productive within our communities. That means working and building up businesses that provide the means to give back to our communities. The tragedy of the current system is that many people aren’t able to do more than survive and live on the economic margins; they don’t have the tools to manage their finances and invest in their own dreams.

Faith-based investors have historically understood the magnitude of this problem. Over 1.7 billion people worldwide lack access to financial services. Moreover, there’s an estimated $5.2 trillion shortfall of capital to cover the funding needs of small businesses globally. These businesses are significant contributors to GDP, and represent nine out of every ten new jobs in emerging markets. Any religious faith, or the government of a country with a developing economy, can point to that gap and find reasons why employment opportunities are limited or small and medium enterprises can’t grow their operations. So there’s a clear need to leverage the private sector, and religious organizations can continue to lead, the same way MEDA has done. They can be the yeast in the dough and give people who need it the means to make bread on a scalable basis.

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