The Rise of Faith-Based Investing: Aligning Capital with Values

A growing segment of investors is increasingly focused on aligning their financial investments with their personal values, particularly those rooted in religious beliefs. Unlike traditional Environmental, Social, and Governance (ESG) strategies, which address broad sustainability issues, faith-based investing specifically targets values-driven portfolios. According to Brightline, there are currently 231 faith-based mutual fund and ETF strategies managed by 27 firms, collectively holding assets exceeding $100 billion. Notable examples include the Christian-focused Inspire 100 ETF (ticker: BIBL), the Jewish advocacy JLens 500 ETF (ticker: TOV), and the Shariah-compliant Wahed FTSE USA Shariah ETF (ticker: HLAL). Each of these funds employs distinct criteria for screening companies based on their alignment with specific faith-based principles.

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The complexity of individual values has led to the increasing adoption of direct indexing in faith-based investment strategies. Direct indexing allows investors to replicate a set of stocks by owning individual companies, enabling them to tailor their portfolios according to personal beliefs. This method empowers investors to decide which industries or companies to exclude, such as cannabis or weapons production, based on their moral perspectives.

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Direct indexing also facilitates direct ownership of shares, allowing investors to vote on shareholder issues and engage with companies more actively. This ownership model provides opportunities for investors to influence corporate governance and advocate for changes within companies they may disagree with, rather than simply divesting. Nick Stonestreet, former CEO and CIO of Blue Trust, emphasizes that this approach enables clients to construct portfolios that reflect their conscience, avoiding investments they find objectionable.

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Despite the growth of faith-based investing, there are differing opinions on what constitutes an appropriate investment strategy. Mark Oppenheimer, a professor at the John C. Danforth Center on Religion and Politics, notes that interpretations of faith-based investing can vary significantly, leading to potential conflicts among investors who share the same religious beliefs. This divergence can complicate the screening process and create challenges in establishing universally accepted criteria for faith-oriented investments.

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Industry experts advocate for the customization offered by direct indexing as a means to align investments with personal values. Stonestreet states, “It is a very elegant way to ask, in light of each person’s faith, which investments they personally find objectionable and would prefer to leave out of their portfolio.” This sentiment reflects a broader trend towards personalized investment strategies that resonate with individual beliefs.

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• “Each client can build their own portfolio around their conscience, excluding companies they personally object to, rather than accepting a prepackaged ESG or faith-based portfolio,” — Nick Stonestreet, President of Financial Services at DLP Capital

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• “Oppenheimer notes there can be several approaches to values-based investing: “If you’re a Christian pro-life investor, you may have a strong interest in ensuring that none of your money is invested in any company involved in providing abortions.” — Mark Oppenheimer, Professor at Washington University in St. Louis

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Faith-based investing represents a significant shift in how individuals approach their financial decisions, emphasizing the importance of aligning investments with personal values. As the landscape evolves, the role of direct indexing is likely to expand, offering investors greater control over their portfolios while navigating the complexities of moral and ethical considerations in investment choices.

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