Faith-based Investment and Sustainability

“Faith-based Investment and Sustainability” is a an in depth research paper written by Kevin Bifulco from the University of Siena Department of Business and Legal Studies.


Faith-Based Investing And Sustainability

By Kevin Bifulco

University of Siena Department of Business and Legal Studies.


Faith-based investment (FBI) are generally considered as the first proponents of the responsible investing segment, which screens out companies with businesses not complying with a precise set of beliefs. On the other side, sustainable issues are affecting financial markets including environmental, social, and governance metrics into corporate valuation.

Thus, since religious-driven investment firms are exhibiting an increasing trend both in terms of asset under management and fund’s creation, this research aims to comprehend not only their financial outcomes but also their sustainability performance in relation to specific equity indexes.

The analysis demonstrates that religious funds overperform the three selected benchmarks in all the ESG scores, while only a part of the funds has shown higher risk-adjusted returns in the long-term period.


In the last decades, faith-based investments, generally recognized as FBI, are a growing niche inside the financial markets. Therefore, the relation between religions and finance has sawn an increasing attention by academics, to analyze differences and peculiarities between the “standard” conception of finance system, where the maximation of shareholders’ profit is the fundamental characteristic, and the “new” approach, usually considered part of the Social Responsible Investment (SRI) sector1, driven principally by the adherence to faith values. If this topic is associated with the sustainable direction wished and promoted at various levels of societies, from national governments to international organizations, in particular after the 2008 financial crisis, sorts out a subject that has not yet received a particular attention.

Sustainability is a widespread concept, it may be well expressed with the definition adopted by the United Nations World Commission on Environment and Development (WCED, 1987):

“Sustainable development is development that meets the needs of the present without compromising the ability of future generations to meet their own needs.”

Many fields may be affected by this sentence and surely the economic, social and environmental aspect, where the interest for future generations and the preservation of their needs must be balanced with the present generation. This achievement may be obtained only if high moral values are part of the equation.

Consequently, in accordance with different religious standards, faith-based investment institutions should reveal a considerable positive attitude with respect to environmental, social and governance (ESG) topics, or considering Corporate Social Responsibility (CSR), and with United Nations Social Development Goals (SDGs) launched in 2015
and to be reached by 2030.

1 There is not a unique name interpretation for this movement. For example, The Forum for Sustainable and Responsible Investment (USSIF), one of the most accredited organization in this sector, consider the acronym SRI as Sustainable, Responsible and impact investing (USSIF, 2006).

1. Literature Review

1.1 History

The relation between faith and economics behaviors can be revealed since the origins of the first monotheistic religion, Judaism, and successively from two of the most practiced religions, i.e. Christianity, with Catholic and Protestant, and Islam believers, which are the objects of my research. There are continuous references in their respective holy scriptures to sets of principles when it is considered the use of money and possessions. For example, there are approximately 2000 verses in the bible and around 13 of 39 parables of Jesus are directed, or simply handled, to explain a specific conduct (Howard L. Dayton, 1981)

There are remarkable moments in the history of the Christian movement. In 325, the Catholic church, with the Council of Nicea, banned usury2 and confirmed it again in 1139 Lateran Councils (Greenberg & Park, 2017). In the 1700s, Quakers in North America strongly rejected the businesses of slavery and war, very profitable at the time,
while J. Wesley, the founder of Methodist church, declared in his sermon “the use of Money” the principle on which Christians should not put their finances in activities that can damage body and mind health (Gillet & Salaber, 2015).

The first faith-based fund was the Pioneer Fund, launched in 1928 and actually the third oldest fund in the US. It kept away from investing in gambling, tobacco and alcohol companies lately known as “sin stocks”. During the 1960s and 1970s, people were contrary to the Vietnam War and then started to take avoiding action with firms involved in the conflict. A new wind was blowing, a greater awareness of money use was widespread, then, in 1971, the PAX WORLD FUND was launched from Methodist and an important religious organization, the Interfaith Center on Corporate Responsibility (ICCR)3, was formed playing an important role as activist shareholder and starting the era of SRI (Smith). Successively, a boost has been given by the Apartheid in South Africa in the early 1990s, where investors’ pressure was fundamental with shareholders engagement.

2The act of lending money at unreasonable high interest rate

3 ICCR aims to influence positively company’s actions, with respect to social and environmental topics representing members with around 100 billion of AUM (Van Cranenburgh, Arenas, Goodman, & Louche, 2014)

If the Koran is examined, Islamic economic teachings are found since the initial moment in the 6th Century. For instance, in the 14th century, believers who adopted loans with interest, risked being excommunicated.

The first Muslim fund was created in 1963, by the Malaysian government, giving the opportunity to believers to accumulate money for a pilgrimage to Mecca (Gillet & Salaber, 2015). Instead, the modern concept of Islamic economics, although it started in the 1950s, finds in 1970s a fundamental turning point principally due to the enormous amount of petrodollars recycling. There was the necessity of a new banking system strictly devoted to Sharia laws (Moisseron, Moschetto, & Teulon, 2015). From the 1970s to 1990’s, the only rules of interest rejection and capital protection were combined with the will to earn a return too (Elgari). Nowadays, Islamic banks are not common only in Muslim countries but they are already developed in many Occidental nations, discovering favorable opinions among the non-Muslim public, having in the United Kingdom the principal hub (Moisseron, Moschetto, & Teulon, 2015).

In the last three decades, with a globalized world, enormous environmental disasters as Chernobyl and Exxon, corporate failures as Enron, the 2008 financial crisis and climate warning gave a continuous attention to the role of ethics in finance (Investments Crossmark Global, 2017). Thus, surely, faith-driven funds may have an astonishing impact to draw a new direction to financial markets and to economies as they have done in the past.

It is significant to notice how FBI and SRI are considered, from academics and practitioners, interchangeable or the first a subset of SRI family. Indeed, despite they shared some principles and SRI were born from previous religious initiatives, there is evidence of several differences (Oseni, 2014; Forte & Miglietta, 2007 ). In particular, faith-driven organizations should exhibit a total correlation with scriptures interpretation received from every denomination. Instead, Responsible funds determine its own set of rules which may vary from a single concerning problem to numerous issues.

1.2 Religions, Ethics and Finance

The first notable research on the influence of religion, among other variables, on the economy dates back to Adam Smith and his masterpiece “The Wealth of Nations” (Iannaccone, 1998), whilst studies that sought to understand the outcomes given by religions impact on economic growth go back to Max Weber, which identified in Protestantism the foundation of capitalism (Weber, 1905).

Friedman in 1970 opens the way to a decennials debate involving without any doubt the ethical aspect shared by FBI. He thought that the unique role of corporations was to maximize profits for shareholders, who can decide, at their discretion, if they want to devote money to charity. A successive argument for the “shareholders theory” is that companies were not created except to do business. Consequently, they do not have competences to manage social issues and this behavior is certainly translated into increasing cost (Friedman, 1970). Conversely, four years later, Freeman proposed what will be renamed “stakeholder theory”. This approach recognizes the key role of companies in modern economies, thus, as a fundamental player, they should realize how an appropriate answer to environmental and social issues must be given if they want to preserve their relationship with every stakeholder touched by the firms. Additionally, this conception has led to the idea that a true  engagement can be a channel to a healthier situation in which all the participating could get mutual benefits (Freeman, 1984). This concept contributed to the origin of the so-called Corporate Social Responsibility (CSR) process, applied in different ways and with various appellations. It gave to companies the function of redirect the “falling” path of this age to reach the target of a sustainable society.

Successively, the discussion was enlarged from the managerial aspect to the investment analysis. In fact, “modern portfolio theory”(Markowitz, 1952) was handled to illustrate how screening out some firms, for ethical reasons, would have created a less diversified portfolio that would not have been on the efficient frontier, hence it would cause worst risk-adjusted returns. On the other hand, supporters of Freeman’s view, believe that the addition of this restriction would not represent a cost but a strategic investment in a long-term period. Moreover, the result of a reduced pool for portfolio composition was compensated from a better firms quality, leading to an ameliorate financial performance. (Barnett & Salomon, 2006; Verheyden & De Moor, 2014).
Generally speaking, for what concern faith-based and SRI funds, the main areas of investigation, have been:

  • Financial Performance: scholars have highlighted opposite empirical results (Hood, Nofsinger, & Varma, 2012). Indeed, many discovered a positive performance of the SRI funds, with respect to their benchmark, or a better performance of FBI comparing to SRI (Lyn & Zychowicz, 2010). Instead, according to others publication there is not a significant differences (Leite & Cortez, 2014; Adams & Ahmed, 2013) even if the funds are distinguished in relation to a defined market sector (Lobe, Roithmeier, & Walkshäusl, 2011; Derwall & Koedijk, 2009), while other showed inferior returns or superior volatility (Beer, Estes, & Deshayes, 2014)
  • Costumers identification: researchers studied people􀂶s behavior in relation to their belief affiliation, or services attendance, inferencing a contextual set of variables like age, state of residence or gender. They attempt to understand the possible association with their decision-making procedures. Investment firms also test the knowledge and the attitude of possible clients (Morgan Stanley, February 2015) or the consciousness of financial advisors.
  • Screening process: professors analyzed the different methodologies applied by FBI and SRI funds, with respect to their benchmark, like S&P 500, between the two sets itself (Forte & Miglietta, 2007), or between Christianity and Islamic funds (Hayat & Malik, 2014). It varies and every fund can use just one approach or multiples steps.The most frequent are those related to negative screening, positive screening and shareholders activism.
  • Metrics measures: in the last few years many academics and professional try to investigate or directly create reliable metrics to evaluate the real contribution given by the expenses, or by specific operations, to intangibles aspects like environment, social and corporate governance in firms balance sheets.

This happened because there is a growing mindfulness of issues in an interconnected world, so public opinion plays a relevant pressure on investors and financial advisors giving them a task always more calibrated on client’s values. For instance, many data providers give access to peculiar ratings for a precise theme fostering their users to fulfill their mandate.

At this point, it is important to understand a precise difference between Christian and Islamic funds. The first-mentioned idea of investing, even if it is partially revolutionizing the general thought of finance including an ethical and sustainable aspect of the equation, it did not affect the economic fundaments of the financial system. This idea could be expressed as the wish of the movement to correct the market mistakes but it does not want to create a new one. Instead, when Islamic values are taken into consideration, a new kind of financial system could be analyzed, where a new framework is explored (Hayat & Malik, 2014). The basilar principles for its development are clearly explained by Hasan-uz-Zaman (1997):

  • The prohibition of “riba”(interest): this is true for clients who deposit their saving and with the lending activity of the bank itself.
  • The prohibition of “garhar”; the concept is related to the uncertainty, which may be transformed into speculation. Therefore, it is not avoided profit, but there should be a tangible asset correlated with the financing process or the investment that guarantee a fixed income (Moisseron, Moschetto, & Teulon, 2015).
  • The prohibition of financing illegal business: those consider banished by Sharia law, such prostitution.

1.3 Faith And Climate

The relationship between faith and environmental situation, in my opinion, deserves a particular consideration. In this historical period, it is widely known what are the climate changes at which all the nations are exposed. Scientists proposed an uncountable number of papers trying to show how climate variations and catastrophic
disasters have been caused by distinct phenomena but in particular by human behavior.

If Bible and Koran teachings on the relation between man and nature are gaged, two simple and profound thoughts, common in both religions, can be observed:

  1. God is the Creator of everything: this means that everything belongs to Him, and must be used with accurateness and without destroying it. For example, in the Bible, it is written: “Behold, to the LORD your God belong heaven and the highest heavens, the earth and all that is in it.” (Deuteronomy 10:14) and it adds in Psalm 89:11 “The heavens are Yours, the earth also is Yours; The world and all it contains, You have founded them”. Instead in the Koran it can be found written Chapter 39 Surah Zumar verse 62: “Allah is the Creator of all things and He is the Guardian and Disposer of all affairs”. Again, in the Bible God will come “for destroying the destroyers of the earth” (Revelation 11:18).
  2. The Earth has been donated to humanity: it represents a double purpose for believers. Firstly, it is a blessing for any person, who should rejoice and give glory to God for it. Secondly, it confers to human the stewardship over it and on everything is on it. There are verses like Genesis 2:15 after the creation “The Lord God took the man and put him in the Garden of Eden to work it and keep it.” and again in the Hadits4 of Muhammad “the earth is green and beautiful, and Allah has appointed you his stewards over it.”

Hence, even if it may seem obvious to notice how the religions to analyze count billions of followers, a total communion with the divine teaching founded in the scriptures, could impact profoundly they way of living the creation and of course, their use of money should respect the environment.In this situation, people are not just thinking about their own life, but to the good of neighbors and to the future of other generations (Vogt, Ritson, & Blanc, 2010) and moreover, they are obedient to a request of God (Hoffman & Sandelands, 2005; Wallace, 2008).

Nevertheless, researchers confirm the presence of two segments of religiousness, the first represents the membership, thus the intellectual participation to a system of standards and values, the second is the adherence to a precise attitude that is represented by their conduct. (Worthington, et al., 2003). For this reason, scholars attempted to comprehend if there is a consistency between green theological interpretation and the conduct of religious affiliates.However, it is important to underline how most of the analysis has focused on Christianity attitude because it is the predominant religion in Westerns countries, and in particular analyzing the phenomena in the United States.The first paper on this topic is to be attributed to White (1967) who strongly accused the
Christian culture to be the reason for the environmental crisis. This study, of course, has been criticized and then investigated from different perspectives, but all of them gave opposites outcomes.

For example, in the 1980s and 1990s, several investigations described a negative relationship between religiousness and climate concerns (Guth, Green, Kellstedt, & Smidt, 1995), many did not obtain any significant type connection (Eckberg & Blocker, 1996).

On the contrary, other scholars found those more engaged and more present to church services display a more friendly with environment. (Woodrum & Wolkomir, 1997). Despite these explanations, all the above papers have been assessed in a limited sample of data as emerged by more recent studies (Clements, McCright, & Xiao, 2014).
Although a more workable set of data, newest analysis show similar observation. In fact, for example, Sherkat and Ellison (2007) found a positive relationship between the attendant and positive behavior, or between consumers who believe and who do not (Minton, Kahle, & Kim, 2015). Instead, from the other side Clements, McCright, and
Xiao, (2014) examine a 2010 national survey exhibiting an inferior level of environmental apprehensions for Christians than nonbelievers. Similarly, Smith and Leiserowitz (2013) observed that Evangelicals are less confident in climate changes. 

At the same time, it is correct to signalize how various faith-based organizations have been created in the last decades to inspire other believers to care for the creation. For instance, the Evangelical Environmental Network (EEN) and the Southern Baptist Environment and Climate Initiative (SBECI).

For what concerns Islamic’s word, as far as this author knows, there is not an extensive literature empirically-based. Nevertheless, in 2003, a paper of El Diwany connects the ecological degradation with the interest in loaning activity, explaining that the capacity of debt pushed people to abuse of limitate resources. On the contrary, quoting a paper written in 2007 by Leiserowitz for the United Nations Development Programme (UNDP): “it appears that though large majorities of the global public are aware of global warming, some, particularly those in Islamic countries, in rural parts of the developing world, and notably in India, remain unaware of this issue”(Leiserowitz,
2007). Instead, the Arab Forum for Environment and Development (AFED), with a survey in 22 Arab countries on more than 20.000 citizens, he discovered the growing propensity towards a better approach with the environment (AFED, 2017). As an illustration, the Accounting and Auditing Organization for Islamic Financial Institutions
(AAOIFI), declares in his guidelines the discretion on green issues.

Summarizing, we did not find from this recapitalization of Christianity and Islam relationship with the environment an absolutely positive response, although it seems to be part of the teaching related to stewardship and consequently represents a God’s commandment.

4It is defines from the Oxford dictionaries as:”A collection of traditions containing sayings of the prophet Muhammad which, with accounts of his daily practice (the Sunna), constitute the major source of guidance for Muslims apart from the Koran.”

2 Screening Methodologies

Before to examine the styles adopted by the FBI funds, it is important to explain two important values at the basis of all the investment criteria. Indeed, they can be synthesized by the principle of:
  • “work the land” as previously quoted, the humanity has received the gift of the land, but at the same time, it has the task to work and”be fruitful” in everything they do. Hence, the idea of investing to obtain consecutively any kind of “returns” is accepted and fostered (Enete, 2017).
  • “golden rule” it is the principle of treating others as one would wish to be treated5. This includes either avoidance of treat others in a negative way and to be proactive in doing good. Therefore, investments should pay attention to the resolutions human issues in order to manifest love helping those who are in a particular need.
The screening methodology presents several similar practices between all the faith-based funds, nevertheless it is possible to evidence variances across religions and denominations. The initial amount of capitals were invested only avoiding few business sectors deemed to be conflicting with religious values, which is commonly named “negative screening”, although it will be displayed how this first step evolves during the decades. Secondly, they applied a “positive screening”6 useful to select, in the basket of their accepted businesses, the best stocks for the feasible and valuable principles for believers as the environment, social and corporate governance (Verheyden & De Moor, 2014). Successively, we may count the relatively newest concept of “impact investing”. It represents a way of investing that is distinct from the positive screening because it does not consider just the best performer of a specific sector, but it implements directly the research of explicit firms involved in impactful subjects. Furthermore, it is possible to find “norms-based screening”, which entails the application not only of national authority laws but an adherence to international financial, social and environmental non-mandatory rules, like the one issued by ONG or Unicef. It is interesting to remark how all these policies are in turn divisible into two fundamental approaches:
  1. Strictly adherent: this group is represented by those that, coming aware of companies discrepancy with their values, rapidly close their positions selling the stocks.
  2. Shareholders engagement7: they are distinguished because when they have knowledge of wrongs behavior keep a propositive attitude and prepare acts such as proxy voting and shareholders resolutions.
As an explanation of these perspectives, it could be considered the case of a company accused of child exploitation. In this case, the first will quickly exit from the investment, whilst the second will try to settle the problem as soon as possible even if they do not approve. In spite of that, when all the possible initiatives are unsuccessful, they will confirm their remonstration divesting from the enterprise.
5 It is the teaching of “love your neighbor”. 6 It is widely known as best-in-class investment approach.

2.1 Negative Screening

2.1.1 Christian Negative Screening

The negative screening is the oldest and the most commonly used type of criteria used by religious investors. In 2010 the International Interfaith Investment Group (3iG) with other institutions8 conducted a survey on faith-based consistent investing, where the 89% of the respondent were Christian organizations and in turn the 67% was Catholics, which stated that the 87% of the interviewees adopt this style while the 79% practices positive screening. (Van Cranenburgh, Arenas, Louche, & Vives, 2010). As said before, from principally three business, these exclusionary criteria have been enlarged with the progressive mindfulness of new scientific research and new business sector which are in contrast with their guidelines.

For what concerns Christian negative screening (table 1), it is possible to find the following common avoided investment areas even with some distinctions and various intensity:

  • Tobacco; it represents the body preservation from an harmful behavior. It includes both manufacturers, distributors and retails store. (Timothy Plan)
  • Alcohol; in order to preserve people from a problematic addition and a detrimental act. It comprises the whole supply chain from the producers to the vendors, even though there is the case of the Epiphany Fund. This Catholic
  • investment firm does not prohibit it.
  • Gambling; it is linked to the idea of stewardship previously explained and to the responsibility of using own resources safely. This screen identifies for example casinos and gambling software.
  • Pornography; it is referred to adult only activities which illustrate a deformation in the concept of sexuality. For instance, it may be realized through internet or advertisement.
  • Marriage lifestyle; It embodies the fundamental precept of family designated with the union of a man and woman. This does not mean that they are contrarious to LGBT rights but they do not invest in firms who actively support
  • them. (Inspire Investing). To be noticed that Evangelicals result more explicitly involved than Catholics, who generally defined simply a “pro-family” approach without explained in what consists (Hood, Nofsinger, & Varma, 2012).
  • Anti-family entertainment; the issue is related to the wish of preserve good values inside the family recreation. Hence, if it is encouraged, directly or indirectly, the practice of violence, sex, coarse language or drugs it is avoided.
  • This could happen through many businesses fields, such as movies, publications, games or software (Timothy Plan).
  • Abortion; in order to protect human life, these exclusion concern firms who own hospitals allowing to perform abortions, abortifacient drugs producers and vendors. Catholics funds, unlike Evangelicals ones, result visibly engage also on the contraceptive sphere.
  • Bioethics; in particular corporations investing in embryonic stem cells research, fetal tissue exploration and cloning analysis.
  • Human rights; in this wide category fall especially themes such as slave and child labor, civil rights, food and water pollution.
  • Workers’ rights; they avert companies that hold negative internal policies. In particular, the discrimination of gender and racial equality, wages and unfair conditions, workplace safety.
  • Weapons; this sector forbids the manufactures of offensive and military armaments, which include for example battle tanks and artillery (Smith, s.d.), or it contains nuclear, chemical and biological weapons. Whereas, some funds are favorable to weapons for the scope of defending human life as the last resort (CBIS)9

These standards are partially similar to those adopted by SRI funds, this can express a sort of shared values on themes like tobacco, alcohol, human rights and weapons. Whereas only a few specific funds invest in pro-life and pro-family issues.(Table 1)

7 It is commonly called also “shareholders activism”
8 As reported in their website their mission is “to contribute to a just and sustainable society through responsible investment in a spirit of genuine interfaith dialogue and co-operation(3iG, 2005). Instead other contributors are the ESADE Institute for Social Innovation and the Vlerick Leuven Gent

Management School.

9Christian Brothers Investment Services (CBIS) is a Catholic investment firm founded in 1981, which works only with Catholics institutions. It currently managed $7 billion.

2.1.2 Islamic Negative Screening

Although there are some similarities with Christian process, Islamic funds present their own methodologies (table 1).The first step is to understand if a business is “halal”, that means products and services deemed adherent to Sharia (Forte & Miglietta, 2007) in opposition to those called “haram”. This interpretation is usually given by a specific religious committee, which provokes often various discrepancies depending on countries (Barnes, 2012). As a result, most of the funds do not explicitly communicate the use of criteria to exclude, from their portfolio, stocks connected to tobacco, abortion and marriage lifestyle. Furthermore, they do not specify their commitment to human and workers’ rights. (Hayat & Malik, 2014). Instead, what really differentiates their negative screening is:

  • Interest-based activities; as said before, the “riba” is prohibited and thus all kind of interest profits are rejected, in this area are usually excluded banks and insurance firms.
  • Highly leveraged companies; they demonstrate a high level of debt ratios.
  • Pork-related business; it is prohibited because the Koran explicitly defines pork as forbidden. (Saturna capital)

Moreover, they do not have just ethical negative screening.In fact, they adopt financials standards, which is usually composed of three percentage thresholds. If these levels are exceeded then the firms are screened out. It may be found with different margins but the standard measures are (Barnes, 2012):

  1. Revenues arose from prohibits(haram) secondary sources greater than 5%. In the eventuality that haram business is not avoided, the principle of purification suitable for cleaning profits intervenes and, for example, they could be donated to charities.
  2. Debt / Market Capitalization >33% it is derived interpretating Muhammad teaching that sais: “the dividing line between a majority and minority is one third, and the third as a portion is considered to be much”(Forte & Miglietta, 2007).
  3. Accounts Receivable / Total Assets > 45%; it comes from the prohibitions of holding an excessive amount of cash in disagreement with the circulation of wealth, it is named “hoarding”.

As a consequence, if Islamic and SRI funds comparison is analyzed, it can be evidenced an inferior number of resemblances if compared with Christian typology. A summary is represented in the following table.

2.2 Positive Screening

The positive screening approach aims to generate the best possible stocks selection within the reduced investable universe. Generally, Christians investors adopt this inclusionary strategy to pursue their ideal of human care matching almost completely with SRI movement. In fact, as already considered for the previous methodology, their
picking tactic search to incorporate ethical behavior and it is represented by the decision of assessing not only financial metrics but also non-financial performance. Since that, corporations have been often challenged by religious organizations to foster best practices in all firm’s divisions. This has led to a virtuous cycle because companies understood not only the necessity of issues resolution but also the possibility of a new competitive advantage.

The principal spheres of interesting are:

  • Environmental; for instance, it is considered valuable the adoption of renewable energies, the commitment to reduce the level of pollution, recycling programs, investment dedicated to water preservation (Hood, Nofsinger, & Varma, 2012).
  • Social; as an example, supply chain control, strict regulation on child labor in less developed countries, access to health and education (CBIS).
  • Corporate Governance; adherence to international standards, unfair wages in remote countries, employee welfare, insurances policies and women representation in governance boards.

For what concerns Islamic mutual fund perspective, it must be said that most of their agenda is related to the negative screening, though there are some funds that use the best-in-class method (Hayat & Malik, 2014).

It is useful to notice how important are the consequences of misbehavior and incidents inside firms context. Indeed, a recent study of Sustaianlytics10 (Morrow, Vezér, Apostol, & Vosburg, 2017) has disclosed how these events in the 69% of cases are followed by a reduction of 6% in market value (Figure 1). Consequently, this approach should benefit from an inferior exposition to corporate risks.

2.3 Impact Investing

Impact investing can be view as the natural consequence of positive investing, following the path as the non-religious SRI funds. Its foundation, as the best-class screening, is to produce a good impact on societies but in this case, it ponders more the outcomes in term of positive influence on consumers, communities and environment.
The research of stocks is directed on those enterprises that, as a mission, are built on product or services which promote an improvement of human condition, in particular of those who live in worst circumstances, and resolution to important climate and social issues (Van Cranenburgh, Arenas, Louche, & Vives, 2010). It is relevant to notice how during the history Religious Organizations have been always involved in financing projects to give a concrete help to those in need, like hospitals, house for orphans, and schools. Thus, religious investment funds are deeply connected to the ethical part of this market, and not solely as economic risks and opportunities (Hayat & Orsagh, 2015). 

The set of possible applications is widespread both in terms of sectors, like community development, water provision, plastic recycling, pharmaceutical products for lowincome regions, education of underdeveloped countries, renewable energy, microfinance, and products like real assets, private equity and private debt (Mudaliar,
Schif, Bass, & Dithrich, 2017).

If it is observed the annual report of the Global Impact Investing Network (GIIN)11 two important aspects emerge, the growing trend of invested capital and the performance. In fact, the number of investment and the allocated resources have revealed a double-digit growth in the last year (figure 1).


Furthermore, the survey reported that fund managers have outperformed or reached their expectation in terms of impact and financial performance ( Fig. 2).

The situation can be considered in line with the yields of 1998-2010 period analyzed by GIIN in 2015 (Mudaliar, Sternlicht, Bouri, & Schiff, 2015), where it is clearly defined almost in line with returns of non-impact investing (Figure 3).

Moreover, the impact investing trend has seen a further thrust with the Sustainable Development Goals (Mudaliar, Schif, Bass, & Dithrich, 2017), which are often overlapping with the planned targets and could represent an investment both of knowledge and methodologies assisted by an international body with a great political and economic influence.

3 Responsible Investment and Actual Condition

3.1 Global Sustainable Commitment

In the last few years, many strides have been made to realize concrete changes from a sustainable point of view. First of all, a crucial step was to recognize the urgency of making a drastic turn in conceiving the state of things. As an example, the World Economic Forum’s report on Global Risks, through a survey on 1000 experts, highlighted that climate and green issues are the most alarming concerns faced by the entire world among 30 risks, followed by the growing level of social disequality (World Economic Forum, 2018). Secondly, it was necessary to give formal guidelines to these adversities and four of them were very significant because they arrived from a religious institution, aninternational governmental organization, and national authorities. As follows:
  1. Pope Francis’ “Encyclical on the environment and human ecology Laudato Si'”. It has been addressed both to believers and non-believers, calling the Earth our “home”. He invited all the people to a full commitment no matter what their situation is. In fact, as everyone is influenced by the consequences of climate change, each one has the responsibility to embrace a positive mindset, going through an “ecological conversion”(Pope Francis, 2015)
  2. Principles for Responsible Investment (UN PRI).It is the most important organization for Responsible Investment, supported by United Nations12.It helps all the investor signatories to manage and involve ESG factors in their portfolio decisions acting in a long-term sustainable interest. It was constituted in 2005 and actually has 1800 members with approximately $70 trillion of AUM (PRI). The research of an homogeneity of principles could lead to a greater application, and consequently, it may raise their influence within the investment industry.
12Quoting the website of PRI:”it engages with global policymakers but is not associate with any government; it is supported by, but not part of, the United Nations” (PRI)
3. United Nations Social Development Goals.
The United Nations, continuing the path of the Millenium Development Goals (MDGs) launched in 2000 for the growth of nations, launched the SDGs. The objectives identified are 17, with 169 targets, and they should be accomplished by 2030 (Figure 5). They direct the attention to the most critical areas for human-being and nature, asking to each one an accurate sustainable approach in every area in which are directly encompassed. For what concerns companies these ambitious aims should drive their mission in a more green and transparent framework. Consequently, firms may detect a new kind of economy in which there will be enormous possibilities in terms of products and markets. Instead, considering the fiduciary duty of institutional investors, it is evident that they must add a critical examination of their investment to respond appropriately (Douma, Bulzomi, & Scott, 2017).

4. COP21
In 2015, at the Paris climate conference (COP21), 195 nations commit their country policy to a global climate and legally compulsory deal. They share the intent to act for “keeping the increase of temperature to well below 2°C” until the risks associated will be strongly reduced (European Commission). It has led to the increasing consciousness of carbon-free13 necessity among corporations, public sector and investment funds.

These four guiding principles have clearly disclosed the effort to effectively change the global climate condition and the challenges for the next years.


3.2 Religious Commitment

Interestingly, Faith-based organizations, and as a consequence, FBI funds, gave an important contribution to the realization of these targets, both putting pressure on institutions and being a leading actor in the discussion of them with the United Nations (Palmer & Moss, 2017). For example, various faith-based funds were the first signatories of PRI14. Particularly noteworthy are the religious statement arose in the last
few years on two peculiar themes, and these are climate changes and SDG’s

The first were principally aimed to explain the religious adherence to Earth conservation. For instance, the Citizens Climate Lobby15 collected faith-based statement of many different religions and denomination, in order to clearly share their position (Whitney & Whitney, 2012). Furthermore, the ICCR had always used shareholders engagement on climate issues and in 2015, with an additional paper, expressed the importance of both a shift to a low-carbon future and investment in new energy resources. Its members, since the energy crisis of 1974, have been involved actively in managing their investment (ICCR, 2015).

Moreover, if SDGs are considered, a significant paper titled “Faith in future” has been written by faiths adherent to the Alliance of Religions and Conservation. It was shared in a meeting with United Nations few months before the diffusion of the goals. 

Firstly, religions and their investment have been always direct to improve the wealth of people and they will continue to do it, contributing to the SDGs, not for the reason that they have been released by an important institution but because these guidelines are coherent with their faith values. Therefore, the discussion should be moved from “how” realize them to “why” achieve them. 

Secondly, many members of the Alliance consider the challenge of sustainable development as a part of regeneration that includes the economic system, which needs to be reconsidered abandoning the extreme capitalist and consumerist culture. 

Thirdly, every program or campaign should be encouraged only in a long-term perspective.

3.3 Limits and Possible Solutions

During these decades, various limits occurred within the SRI and FBI movement. In 2015, the CFA Institute16 interview 1125 of his members, asking why they are not integrating ESG factors in their analysis (Figure 6). The outcomes indicate principally five areas that limit the adoption of ESG standards, and they are: lack of demand (47%), these issues are not material (35%), lack of information/data (21%), insufficient knowledge of how to consider these issues (21%), inability to integrate ESG info in my quantitative models (17%) (Hayat & Orsagh, 2015). The answers to these warnings could be respectively:

  1. The lack of demand can depend on many reasons, although the market constant growth could explain partially this objection. The awareness of the climate condition and the initiatives previously quoted will represent a boost in the development of the demand. For what concerns this field, a study of Morgan Stanley, showed how younger generations like Millennials are more conscious of the need to create a new paradigm. In fact, 86% of Millenials respondents are interested in sustainable investing, while the general population stops at 75%.
    (Morgan Stanley, 2017).
  2. The concept of materiality is always more spread within companies and investment industry. It represents all the information that materially impact the financial condition addressable to a specific sector, including data on
    sustainability.For instance, SABS17 standards support a more accurate evaluation of ESG issues eliminating those not useful for a particular industry but revealing the topics that may affect a precise business.
  3. Currently, there is an uncountable number of organizations providing data, on the other hand, the real problem is the exactness and the transparency of firms released information. This situation could be solved promoting more stringent laws and uniforming a set of homogeneous rules to be accepted and implemented across national jurisdictions.
  4. The insufficient knowledge can be overcome only creating internal positions specifically devoted to sustainable compliance or using specialized external companies. Additionally, a cultural change may be achieved reconsidering companies internal values and educating all the employers on sustainable development arguments, challenging them to realize high-value products and services for achieving the UN objectives.

  5. The inability to integrate ESG information is a valid reason because actually, many firms create personal tools, including different issues, more or less identifiable. This may lead both to a difficulty in comparing them and to understanding which ones are most suitable for a model. Surely, as said previously, the material approach could decrease the extent of possible risks, facilitating the construction of models. However, it is also vital to realize more homogeneous methodologies to estimate companies internal and external factors. Nevertheless, this motivation cannot prevent the essential commitment to evaluate these issues.

3.3 Limits and Possible Solutions

It must be considered also two relatively new phenomena within faith consistent investing (FCI), that can help the diffusion both of religious investment fund knowledge and the mindfulness of their impacting approaches.

Firstly, the birth of green Sukuk bond for Islamic-based investors. It has been built to incorporate Sharia’ guidelines and green topics. As previously said, Islamic teaching does not allow to receive interest and every deal must be asset-backed. In this huge market, it has been highlighted an increasing interest, from private and public Islamic institutions, for climate change solutions. This bond works like a normal Sukuk bond but the difference is that the assets are related to precise environmental subjects. In other words, they are associated with investments in renewable energies, sustainable infrastructures, electric vehicles et cetera. For instance, at the beginning of 2018, the Indonesian government was the first issuer of sovereign green Sukuk bond for $1.25 billion (Dunkley, 2018). 

Secondly, the birth of Exchange Traded Funds (ETF)18 for Christian-based investors. The ETF market increases annually at remarkable rates, reaching a size of almost $4.56 trillion in 2017 (Vlastelica, 2018 ). However, there were not a significant amount of funds for faith-driven investors. Hence, two companies, Global X and Inspire Investing, respectively issued ETFs for Catholics in 2016 and Evangelicals in 2017, giving them the opportunity to access to less expensive funds, reproducing a benchmark after screening out firms in conflict with their religious principles. The first is in accordance with the United States Conference of Catholic Bishops (USCCB) guidelines. Whereas the latter adopts a precise impacting methodology adherent to Biblical values and it is part of the Biblically Responsible Investment (BRI) movement, which specifies a precise set of common principles accepted by several Christian denominations. Interestingly, Inspire Investing issues also the first religious corporate bond opening a new market segment for Christian investors.

4 Data And Methodology

4.1 Hypothesis Development

In order to investigate the relationship between faith-based investment and sustainability, this research study specifies the following hypothesis:

H1: The financial performance of FBI is not significantly different from that of the benchmark.

The literary review has evidenced conflicting outcomes in term of financial performance, thus the research will investigate the consistency of their profitability.

H2: Religious investments are more sustainable than conventional market indexes.

The analysis of faith-based literature has disclosed differences between the beliefs and the behavior of the affiliate. Nevertheless, at the institutional level, measures have been taken in favor of a sustainable commitment.

4.2 Data Selection

  1. I decided to select 6 religious investment funds, respectively, 2 Islamic, 2 Catholics and 2 Protestants, analyzing their financial and sustainability performance compared to 3 Index, id est, S&P 500, MSCI World and KLD 400. They are some of the largest and most known FBI funds in the United States, in this way, there are not error addicted by
    differences in government and law system, as previously indicated for the Islamic context. I selected only equity fund because ESG scores can be analyzed directly on the constituent, identifying specific trend inside each sector category. Moreover, the choice was realized selecting those funds that invest in large-cap US companies or
    International markets. Since that, I choose as benchmark two worldwide known indexes, namely, the S&P 500 and MSCI WORLD indexes. I picked also the MSCI KLD 400 because it is considered the benchmark for SRI and then could be compared at least with the FBI correlated to the USA stock markets to analyze if there are similarities between the category of responsible investment. Furthermore, these funds have a date of inception adequate for my examination, specifically before 2010. Thus, other funds have been avoided because they invest in other market category or they have been launched after 2010.

The funds selected are:

  1. Epiphany FFV fund.
    It is a Catholic fund. It was launched in 2007, and it invests in US companies in accordance with the USCCB Socially Responsible Investment Guidelines. It is part of the Epiphany fund family, which comprises 2 products. In June 2017, it had $23.1 million of net assets (Epiphany funds).
  2. Ave Maria World equity fund.
    It is a Catholic fund and it is the largest Catholic mutual fund family in the U.S. The world equity fund inception day was in 2010, and actually has $62.2 million of net assets. AM product family administers 6 investment fund (Ave Maria mutual funds).
  3. Amana Income Fund.
    It is an Islamic fund and it is one of the oldest, in fact, it was launched in 1986. It invests in US companies avoiding business and financial ratio in contrast with Sharia’ laws. In March 2018, its net assets correspond to $1.41 billion (Saturna Capital).
  4. iShares MSCI Islamic World ETF.
    It is an Islamic fund. This ETF aims to track the MSCI Islamic index, and it invests usign both Sharia’ qualitative and financial screening. It picks stocks, as the MSCI World, from 23 developed markets countries (MSCI)
  5. Timothy Plan International fund.
    It is a Protestant fund. It is part of the Timothy Plan family of funds, one of the oldest for Evangelicals investors. It invests in accordance with Christian principles and it has assets of $110 million. Actually, Timothy Plan manages 15 funds. (Timothy Plan).
  6. Thrivent large-cap stock fund.
    It is a Protestant fund. It is part of Thrivent Financial, members of Fortune 500 list. It was launched in 1987 typically invests in a globally-diversified portfolio. Its total assets amount, in March 2018, to $1.9 billion. Thrivent supervises 25 funds (Thrivent mutual funds).

Instead, the indexes are:

    1. S&P 500.
      It is the principal world index based on market capitalization of 500 large-cap stocks in the USA, listed on the NYSE or NASDAQ, it is widely used as a benchmark for equity portfolio and it’s trend is strongly related to the US economy.
    2. iShares MSCI WORLD ETF
      It is the leading index for the international segment, this benchmark represents large and mid-cap equity across 23 markets countries, excluding emerging markets. (MSCI)
    3. iShares MSCI KLD 400 social etf
      Created in 1990, it is one of the oldest social responsible indexes and it consists of 400 companies selected from the MSCI USA IMI Index with high ESG rates. It adopts an exclusionary screening to avoid namely: alcohol, tobacco, adult entertainment, civilian firearms, gambling, military weapons, nuclear power and genetically modified organisms (MSCI)

4.3 Methodology

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