Are ETF Owners Smarter

Are ETF Owners Smarter?

Investors are increasingly favoring Exchange Traded Funds (ETFs) over mutual funds (Crittenden, 2017). From 1/31/18 – 3/10/20, ETFs received net inflows of $723 billion while mutual funds experienced net outflows of $450 billion (ICI – Weekly Estimated Flow Reports, 2020).

Why are investors moving away from mutual funds to ETFs?

Why are investors moving away from mutual funds to ETFs? Is it all marketing and hype? While it may be difficult to understand the exact motives of the average investor moving from mutual funds to ETFs, one question we can ask is whether investors who own ETF securities actually have more investor knowledge than non-ETF owners. Put another way, are ETF owners smarter than non-ETF owners? 

During July of 2019, the Journal of Financial Planning published an article where my colleagues and I asked these questions (Enete et al., 2019). We used the 2015 National Financial Capability Study (NFCS) investor survey, published by FINRA, which asked investment-related questions to 2,000 individuals who owned investments outside of retirement accounts. One of the questions in the survey asked participants whether they owned ETF securities in their non-retirement portfolio. This question allowed us to compare the characteristics (e.g., age, income, education) of the survey participants who owned ETF securities (22% of the 2,000 participants) versus the non-ETF owners. There were also detailed questions about investor knowledge, so we were able to assess whether the ETF investors had more investor knowledge than non-ETF owners, as well. 

Our results showed that ETF owners were more likely to be under 44 years of age and non-white. Sex, marital status, education level, and household income did not play a significant role in predicting ETF ownership. In addition, ETF ownership was associated with higher financial satisfaction and higher risk tolerance, as compared to non-ETF owners. 

Regarding being smarter, investor knowledge did play a significant role in predicting ETF ownership. Our results showed that, if an investor was able to score just one point higher in their subjective (i.e., “I believe I am smart”) and objective (i.e., “I took a finance test that proves that I am smart”) investor knowledge scales, that would be associated with a 4% and 1% higher probability of owning an ETF security in a participants’ non-retirement portfolio, respectively.

Investor knowledge did play a significant role in predicting ETF ownership.

Why did more investor knowledge predict higher ETF ownership? 

As explained in our paper, “there are a number of benefits to investing in an ETF product over a mutual fund product, with the most notable benefits being lower capital gain tax payments, lower fees, and improved liquidity. Investors in ETFs should expect to pay lower capital gain tax payments than mutual funds given their trading structure (Kostovetsky, 2003). In addition, ETF investors should expect to pay lower fees since accounting costs are determined at the shareholder level (rather than fund level). ETFs do not have load fees (which tend to be one of the largest fees associated with mutual funds), and ETFs do not have 12b-1 fees (marketing and distribution fees). Finally, ETFs provide investors an additional liquidity benefit, as ETFs share prices allow for intraday values, whereas mutual funds are only priced once-per-day at their net asset value (Enete et al., 2019, p. 44).

There are a number of benefits to investing in an ETF product over a mutual fund product.

While ETFs have many advantageous qualities, it is important to acknowledge that ETFs are not for all investors and also carry some drawbacks. For example, smaller ETFs may have thinner trading and premiums to NAV (net asset value), as well as a commission cost per trade.

Even with considering some of the disadvantages of owning ETFs, it does not undermine the key implications of this study that ETF owners do have more investor knowledge, have higher financial satisfaction, are younger, and have higher risk tolerance levels when compared to non-ETF owners.



Crittenden, E. (2017). Advisers Show a Return to Cash, Continue to Favor ETFs. Journal of Financial Planning, 30(6), 18.

Enete, S., Reiter, M., Usrey, W., Scott, A., & Seay, M. (2019). Who is Investing in ETFs? Exploring the Role of Investor Knowledge. Journal of Financial Planning, 32(7), 44–53.

ICI – Weekly Estimated Flow Reports. (2020, March 10).

Kostovetsky, L. (2003). Index mutual funds and exchange-traded funds. The Journal of Portfolio Management, 29(4), 80–92.

Are Christian Shareholders Morally Responsible?

Are Christian Shareholders Morally Responsible?

For many years, Microsoft has sold a video game called, Metropolis: Lux Obscura. In this game, comic book art is used to deliver graphic nudity and violence to children and adults. If Christian investors held shares in Microsoft (which many do through their ownership of the S&P 500 index fund), would they be morally responsible for the sale of this video game? And, if so, what should they do?

“Is a Christian shareholder morally responsible for the actions of a corporation?”

What does it mean to be morally responsible? One definition of moral responsibility: “the status of morally deserving praise, blame, reward, or punishment for an act or omission performed or neglected in accordance with one’s moral obligations.” (1)

Drawing from this definition, are Christian shareholders of Microsoft deserving of blame for Microsoft selling this pornographic video game? 

In order to respond to this complex question, let me share with you a family story where I was deserving of blame for a terrible crime.

Last year, after the five year drought in California ended, a beautiful natural phenomenon occurred known as the “poppy apocalypse.” My wife and I and our two kids went to see this amazing event where the hills, as far as the eye could see, were filled with bright, orange poppies. As we walked along the painted hills, my four year old daughter proudly plucked a handful of poppies and posed for a picture. I smiled big and reached for my camera. How darling, I thought. 

Suddenly, my wife came running over, “What are you doing!” she yelled. “It is illegal to pick poppies in California parks!” 

I know what you are thinking now: what kind of monster allows their daughter to break the law by picking protected poppies!

I am deserving of moral blame for her action even though she is the one that picked the flowers and committed the crime. I said nothing as my daughter smiled for the picture. It is my act of omission that makes me morally responsible.

“It is my act of omission that makes me morally responsible even though she picked the flowers and committed the crime.”

In many ways, this same “poppy scenario” plays out with shareholders. Just like my daughter looked up towards me right before she picked the flowers, a manager of a corporation looks up towards their shareholders right before they make important business decisions. Managers take seriously the interests of shareholders. Shareholders are given the voting power to determine the board of directors, who then have the power to fire them for not representing shareholder interests. 

Going back to the Microsoft example, the corporation represents the investor. Inasmuch as the corporation acts on the investor’s behalf, the investor is a co-author of the wrongful act, and therefore complicit or morally co-responsible for it.(2)

“Inasmuch as the corporation acts on the investor’s behalf, the investor is a co-author of the wrongful act, and therefore morally co-responsible for it.”

Built into the fabric of a limited liability corporation is an accountability system where management is meant to consistently look up at the face of their shareholders, whose interests they have been hired to represent. And, as managers look up to their investors, most Christians are silent. This makes Christian owners of Microsoft stock morally responsible for the production of the pornographic game, Metropolis: Lux Obscura through an act of omission.

To make matters worse, the label “Christian owner” is an oxymoron. 

A Christian can never be a true owner. God is the ultimate shareholder whose interests we are seeking to represent as vice-regent (Genesis 1). Just like managers of corporations are meant to look up at shareholders before they make decisions, Christian shareholders are managers who are meant to look up at the face of the ultimate Owner of all capital, and see whether they are representing His interests.

“We need to look up at the face of the ultimate Owner of all capital, and see if we are representing His interests.”

So, what is a Christian shareholder to do? 

It is important to be clear that Scripture does not give any explicit guidance about what to do. The Bible does not mention what a Christian minority shareholder should do when management acts in a way that is not consistent with Biblical truth. 

In general, Christian shareholders have responded in one of three ways:

  1. Do nothing.
  2. Stop investing in the stock market.
  3. Change the way they invest in the stock market.

It is important not to judge other Christians as they respond in one of these three ways. Responding requires wisdom, gaining wisdom is usually a long journey and everyone’s journey looks a little different. Our collective response must be full of grace and truth together. 

Regarding the third response, Biblically Responsible Investing (BRI) is how many Christian money managers, who sought the wisdom of God, have changed the way they invest in the stock market. While it is true that no investment product is truly “Biblically responsible,” the BRI title simply portrays an effort by Christian investors to be sensitive to Biblical truth in how they invest their money, a very good endeavor. 

In general, an investment product becomes “BRI” when it engages in any of the following activities (ideally all three):

  1. Corporate engagement
    • Making the Chrisitan voice known to management.
  2. Negative screening
    • Not owning certain companies that do not represent the interests of Christians.
  3. Positive screening
    • Finding companies to invest in that represent the interests of Christians particularly well.

As Christians use BRI products, they collectively form a voice that lets management know their interests and frees those shareholders from being responsible for immoral management decisions.

“Christians can create beautiful culture if they fully embrace their moral responsibility for how they invest and seek to proclaim the fragrant interests of Christ to the managers of this world’s capital.”

Microsoft’s game, Metropolis: Lux Obscura, creates culture – a bad type of culture. Investments, in general, are culture-makers since certain services and products are fed with Christian savings. 

A gardener brings to life either flowers or weeds in his garden, depending on where he waters. In the same way, Christian investors bring to life either weeds or flowers in their neighborhood, depending on how they invest. Christians can bring to life beautiful culture if they fully embrace their moral responsibility for how they invest and seek to proclaim the fragrant interests of Christ to the managers of this world’s capital.


(1) Honderich, T. (2005). The Oxford Companion to Philosophy. In The Oxford Companion to Philosophy. Oxford University Press. 

(2)  Sandbu, M. E. (2012). Stakeholder Duties: On the Moral Responsibility of Corporate Investors. Journal of Business Ethics, 109(1), 97–107.

Inspire Investing Highlighted for Faith-Based ESG Investing Efforts in US SIF Foundation’s “Rise of ESG in Passive Investments” Report

Inspire Investing was highlighted in the US Sustainable Investment Forum (SIF) Foundation’s report titled, “Rise of ESG in Passive Investments” for their efforts to bring a faith-based approach to environmental, social and governance (ESG) investing. Only eight leading investment firms out of many were selected for special mention case-studies for their work in the growing ESG investing industry.

“We are honored to be highlighted in this industry-leading research study by the US SIF,” stated Robert Netzly, CEO of Inspire Investing. “The US SIF is the leading voice in the secular sustainable investing industry, and their research is a primary source of information for investors around the globe interested in ESG incorporation. We are proud to represent faith-based investors everywhere in this major report.”

About the “Rise of ESG in Passive Investments” Report

The US SIF “Rise of ESG in Passive Investments” report explores the growth of passive ESG investing and the debate on the effectiveness of passive ESG funds versus active ESG funds, as well as the increasing flow of assets to passively managed ESG funds.

A key observation of the report is that the “net flows into passively managed ESG funds outpaced net flows into their actively managed counterparts during the four of the past five years…In 2019, net flows into passive ESG funds totaled $12.7 billion compared to $8.7 billion for active ESG funds.”

Inspire Investing was highlighted as one of eight ESG investment firms chosen as case-studies for their work to combine passive investing and ESG.

The US SIF is a leading voice in sustainable ESG investing and produces some of the most widely followed and influential research in the industry.

About Inspire Investing
Inspire Investing is a leading provider of faith-based ESG investments and creator of the globally recognized Inspire Impact Score™ which is used by investors around the world to measure the biblical alignment of their investments according to Biblically Responsible Investing (BRI) principles. For more information, visit

Ill-Wind Investing: Prudent or Profiteering?

As the Covid-19 crisis began to accelerate, my colleague proudly told me that he profited from buying Zoom stock. Another one of my friends boasted that he had made money selling short the stock market. Hearing these stories made me recall the words of the father from East of Eden, “Boys go out, and some die…do you think I could take a profit from that?”

“Boys go out, and some die…do you think I could take a profit from that?”

During late March, in a dark alley near Costco, there was a man selling toilet paper at marked-up prices. Seeing this man stirred in me two opposite reactions: anger for profiteering from other people’s suffering, and admiration for a man who was able to create a viable business model that both feeds his family and serves the community.

Which emotion should I feel when people make money from a pandemic: anger or admiration?

Ill-wind investing refers to making money on the account of “ill-winds” that sweep through a community, such as natural disasters, wars, or pandemics (Irvine, 2002). Is it morally wrong to make money from ill-winds?

Is it morally wrong to make money from ill-winds?

One simple way to argue against ill-wind investing would be to say that any activity that makes a profit from the suffering of others is morally wrong. While this may sound like a crystal clear rule to follow, it actually gets murky very quickly. For example, receiving an inheritance from an aunt who greatly suffered from Leukemia would be an example of a morally justified profit from the suffering of another person. Other murky examples include doctors who profit from ruptured spleens or boxers who receive money from knocking out their opponent.

Is it morally wrong to buy Zoom stock, short the stock market, or sell toilet paper at marked-up prices during a pandemic? One way to form a moral principle around this type of ill-wind investing would be to ask the question, “does this activity increase, have no effect, or diminish the suffering of others?” (Irvine, 2002).

Does this activity increase, have no effect, or diminish the suffering of others?

Regarding the Zoom stock, one could argue that it either has no effect, or actually diminishes the suffering of others. It is a good thing when the company of a needed product receives an increase in its stock value. Zoom’s access to capital, then, increases, helping the company expand its service to those in need.

Regarding shorting the stock market, one could argue all three cases. It may diminish the suffering of others by being a vehicle for greater price discovery. Price discovery, over a long period of time, helps to avoid destructive stock market bubbles. However, it may increase the suffering of others by encouraging a stock price drop that goes beyond price discovery. A stock market crash could then cause a panic that would cascade into business layoffs and premature retirement withdrawals.

Regarding selling toilet paper, it may diminish their suffering by being a provider of a needed commodity when every other provider, who is trying to be “fair,” has no more supply. It also may potentially increase the suffering of others by emptying the pockets of those who are at their most vulnerable financial state (perhaps unemployed, or furloughed).

Given that ill-wind investing is morally complex, Biblical wisdom, Holy Spirit discernment, and counsel from others is required. It is important to be fearful about making money from an event that is causing others to suffer. It is also important to look for ways to share any profit that is made with those who were not as fortunate.

“Your abundance at the present time should supply their need, so that their abundance may supply your need, that there may be fairness. As it is written, ‘Whoever gathered much had nothing left over, and whoever gathered little had no lack.’” 2 Corinthians 8:14-15, ESV.

There is a story about a man who would walk a mile to work everyday. His one mile walk was his favorite part of the day. One day he happened to look down at a gutter and found a five dollar bill. The man was so thrilled about finding the five dollar bill, that the next day he couldn’t help but peer into every gutter on his way to work. In fact, for the rest of the year, he spent most of his one mile walk staring at gutters.

Even if ill-wind investing is morally acceptable, if we do not watch our ways, we may actually spend our lives “staring at gutters” as we try and find ways to continue to make money from the ill-winds of global warming, pandemics, hurricanes, and droughts. And, if we are not careful, we may slip into a terrible place; namely, hoping that more ill-winds would happen so that we could make even more money.

If we are not careful, we may slip into a terrible place.

Investing is not just a matter of the mind and the wallet, but also of the heart and the community. When we invest in a business venture, it is important to consider the impact that it will have on our community and our hearts, as well as on our wallets. Do our investing opportunities diminish human suffering? When we invest, we should strive to enter into investing opportunities that bring about prosperity for both ourselves and our community.


Irvine, W. B. (2002). Ill-Wind Investing: The Ethics of Wishing. Journal of Business Ethics, 35(1), 57–63. JSTOR.

Quarantine Image

Using Behavioral Finance To Understand The Necessity Of Quarantine

With every drop in GDP from the quarantine, my stomach drops, as well. I can’t help but ask myself, “is this the right way to go? As a Christian, I would like to submit to the authority of the government (Romans 13), but what if their policies are overly destructive, like cutting off our hand to fix a paper cut? What about the idea of ‘herd immunity’ where we are all exposed to the virus, all-at-once, and get done with it? With no more curves to flatten in the future?”

There has to be a better way than quarantine.

Even though I really have no valid voice in questioning the policies of the CDC, I will provide my perspective as a finance professor. Looking at behavioral finance may actually provide evidence in favor of the quarantine. For many years, I have conducted the following behavioral finance thought experiment with my students from recent Nobel Prize winner in economics, Richard Thaler (Thaler & Ganser, 2015). 

Please respond to the following two scenarios:

A. Suppose by attending a lecture you have exposed yourself to a rare fatal disease. If you contract the disease you will die a quick and painless death sometime next week. The chance you will get the disease is 1 in 1,000. We have a single dose of an antidote for this disease that will sell to the highest bidder. If you take this antidote the risk of dying from the disease goes to zero. What is the most you would be willing to pay for this antidote? (If you are short on cash we will lend you the money to pay for the antidote at a zero rate of interest with thirty years to pay it back.)

B. Researchers at the university hospital are doing some research on the same rare disease. They need volunteers who would be willing to simply walk into a room for five minutes and expose themselves to the same 1 in 1,000 risk of getting the disease and dying a quick and painless death in the next week. No antidote will be available. What is the least amount of money you would demand to participate in this research study?

Consistent with what Richard Thaler found in his experiments, my students tended to have dramatically different responses between scenarios A and B. In fact, many of my students would refuse to participate in scenario B (even though it was a thought experiment). Having dramatically different responses to scenario A and B is known as the endowment effect.

The endowment effect has applications in finance by showing that sellers often think that what they own is worth more than its true fair market price simply because it is owned by them (i.e., it has become a part of their endowment). A classic example of this is when investors hold onto stock losers too long (Kalunda & Mbaluka, 2012).

This same effect may explain why a preemptive quarantine is the best strategy for policymakers to enact. If everyone was asked to essentially become exposed to the Covid-19 virus all-at-once, for the sake of Herd immunity, that would be very similar to asking them to participate in scenario B. Put another way, herd immunity is similar to scenario B since it asks people to voluntarily expose themselves to a rare disease in order to be compensated in the form of higher future expected economic wealth for our country. The final result of this would be, just like with scenario B, a refusal by a majority of people, and these people would likely self-quarantine.

Quarantine does not ask people to enter into scenario B.

A delayed self-quarantine is a much more disastrous scenario than an early, government sanctioned quarantine for the following reasons: 

  • The delay in quarantine would increase the number of cases, which would then overwhelm the healthcare system, causing thousands of people to die without hospital beds or sufficient care.
  • A very similar economic loss would occur (perhaps worse) than if the government sanctioned a preemptive quarantine.
  • Having both the hospital system become overrun and the government entities enact a system that people will fundamentally not follow would cause a deep distrust in two of the most important institutions in our society. This would cause a rip in our social fabric. 

Our current policy does not ask people to be a part of scenario B. This is good. It means that some level of faith is able to be maintained in both our health-care system and in the government’s authority; even while our economies experience heavy losses. 

While I may agree, or disagree, with the policies of the kingdoms of this world, as a Christian, I am called to seek His Kingdom first (Matthew 6:33). Through this Covid-19 crisis, God’s Kingdom has not experienced any drop in heavenly GDP. In fact, His Kingdom is likely advancing at a more rapid rate than before, as our idols of self-autonomy and independence are toppled. 

Which kingdom do I want to prosper more? If I am desperate for my kingdom to prosper, and mildly interested in God’s Kingdom to prosper, then I am not walking as Jesus calls me to walk.

Which kingdom do I want to prosper more?

During this time, as good, or bad, human policies come and go, the words of Jesus should be at the forefront of my mind:

“In the world you will have tribulation. But take heart; I have overcome the world.” (John 16:33, ESV)”


Kalunda, E., & Mbaluka, P. (2012). Test of endowment and disposition effects under prospect theory on decision-making process of individual investors at the Nairobi securities Exchange, Kenya.

Thaler, R. H., & Ganser, L. J. (2015). Misbehaving: The making of behavioral economics. WW Norton New York.

Meet the Biggest Supporter of Planned Parenthood in the S&P 500

Intel Corporation [ticker: INTC] is the largest semiconductor chip manufacturer in the United States (second largest in the world behind #1 Samsung) and ranks number 46th in the 2018 Fortune 500 ranking of largest companies in the United States by revenue.

Intel also holds another dubious claim to fame: they make more large donations to Planned Parenthood than any other company in the S&P 500.

Intel’s Planned Parenthood Donations

According to data sourced by Inspire Insight, Intel has made 72 large donations of $1,000 or more to Planned Parenthood in recent years. These donations were made to regional Planned Parenthood affiliates all over the nation, as well as directly to the “parent” organization, Planned Parenthood Federation of America. And for the record, Intel also made one large donation to Population Connection, a population control advocacy group founded in 1968 as “Zero Population Growth“.

This begs the question. Why?

I reached out to Intel to find out exactly why they decided to financially support an organization that has been the subject of a congressional investigation for the illegal sale of aborted baby parts, been routinely in hot water for questionable medical and business practices, and whose massive abortion cartel business is a flaming touch-point of controversy across the nation and around the world.

Intel’s investor relations department response was…no comment.

Investor Responsibility

There is a growing movement of faith-based investors who are taking their ownership responsibility seriously when they consider whether it is ethically and morally responsible to invest in a company like Intel, who is using their corporate clout to support the abortion industry through donations to organizations like Planned Parenthood. This biblically responsible investing (BRI) movement has gone global and is growing at an exponential rate.

Investors are owners, and owners are responsible for the actions of their companies. Even if those owners are not actively involved in the day-to-day operations of their company, they are still responsible for what it does, how it makes money and how it spends that money. There is a direct ethical and moral connection between an owner and their company that cannot be ignored.

Biblically responsible investors have woken up to this truth and are taking advantage of modern investment toolsproducts and biblically responsible financial advisors that allow them to precision align their investments to support their values — like protecting the unborn — while working toward their financial goals at the same time.

Do You Own Intel Stock?

Some readers might feel relieved after reading this article to look at their investment account statement and see that Intel’s ticker symbol, INTC, is nowhere to be found. However, what these investors may not realize is that if they own any number of the most widely held mutual funds or ETFs in the country (such as those from Vanguard, American Funds and Fidelity), there is a good chance that they do, in fact, own shares of Intel and are partnering with their aggressive funding of Planned Parenthood and the abortion industry.

Government regulations require mutual funds to disclose their holdings on a regular basis, and a quick review of the top ten funds that own Intel stock reveals the following list:

  1. Vanguard Total Stock Market Index ($5.9B owned)
  2. Vanguard 500 Index Fund ($4.2B owned)
  3. American Funds Washington Mutual Fund ($3.4B owned)
  4. SPDR S&P 500 ETF ($2.4B owned)
  5. American Funds Fundamental Investor Fund ($2.1B owned)
  6. Vanguard Institutional Index Fund ($2.02B owned)
  7. Invesco QQQ Trust ETF ($1.94B owned)
  8. American Funds American Balanced Fund ($1.78B owned)
  9. Fidelity 500 Index Fund ($1.69B owned)
  10. iShares Core S&P 500 ETF ($1.54B owned)

(Data as of 6/30/2019. Source:

Invest Pro-Life

While it can be disheartening to realize that through your IRA, 401(k), mutual funds or other investments, you might actually be partnering with Intel and other large corporations as they enthusiastically support the abortion industry, the good news is that you do not have to be a cog in the wheel of the abortion cartel. You can change the way you invest.

Thanks to new technology that empowers investors with complete transparency in the moral and ethical issues present in their investments, and a growing number of financial professionals specialized in providing biblically responsible investing services, pro-life investors have many options when it comes to aligning their investments in support of the pro-life movement and the protection of pre-born children everywhere.

It all starts with learning about what you own, then making a concerted decision to make a change — both in your portfolio and the world at large.

Will you join us?



Dr. Eric Davidson, DBA, CFA Headshot

Former Wells Fargo CIO, Dr. Erik Davidson, Joins Inspire Investing To Advance Biblically Responsible Investing Movement

The former Chief Investment Officer of Wells Fargo’s Private Bank, Dr. Erik Davidson, is bringing his 20+ years of experience to the biblically responsible investing (BRI) movement. Dr. Davidson is joining Inspire Investing as Chief Economic Advisor and will be working closely with Inspire’s investment committee to provide valuable insight on global, macro-economic events and trends from a biblical perspective.

Dr. Davdison’s particular expertise in the area of behavioral finance will enable Inspire to produce discerning research and data on the intersection of faith, investing and investor behavior and further solidifies Inspire’s position as a leader in the biblically responsible investing movement. Dr. Davidson is scheduled to produce several articles and papers each quarter and will participate in creating economic commentary for investment professionals on Inspire’s quarterly CIO newsletters and portfolio manager calls.

Here is what Erik Davidson had to say about joining Inspire, “I am honored to be an advisor to Inspire Investing and the meaningful work that they are doing for the biblically responsible investment movement. In my role as Chief Economic Advisor I hope to show advisors and investors that aligning investment strategies with their social and spiritual goals, not just their financial goals, can help promote more prudent investor behavior. Therefore, by doing good, investors can do well. I am excited for what God has in store for this next chapter of my career.”


At Wells Fargo, Dr. Davidson oversaw more than $200 billion in assets for the Private Bank and has co-authored multiple books including “Investing in Separate Accounts” and “The E-Finance Report.” He has authored numerous investment-related articles, speaks at investment-industry conferences, and is regularly featured in the media including The Wall Street Journal, The New York Times, CNBC, Fox Business News, Reuters, and Bloomberg.

Most recently, Dr. Davidson received his doctoral degree from the DePaul University Graduate School of Business with a dissertation in the area of Behavioral Finance.

Leaders in the Biblically Responsible Investing Movement

Inspire CEO, Robert Netzly, had this to say, “Dr. Erik Davidson is an amazing addition to the Inspire team and we are honored to welcome him aboard! Erik’s incredible experience leading one of the nation’s largest investment firms, combined with his heart to honor the Lord with his professional life, make his partnership a huge win for Inspire and the advancement of the biblically responsible investing movement.”

Inspire is a member of the CIF (Christian Investment Forum) which is a Kingdom-focused investment association committed to educating advisors and investors on biblically responsible investing.

Here is what CIF President, John Siverling, said about what this means for the BRI movement, “CIF applauds Dr. Davidson’s decision to join Inspire as Chief Economic Advisor.  His experienced voice will be one more that can credibly speak about the purpose of business, and the economics in investing that align with biblical values, human flourishing, and value creation for stakeholders and shareholders alike.  We look forward to sharing Dr. Davidson’s thoughts with our Christian advisor and investor audience.”

Rapid Growth

Inspire’s commitment to supporting biblical values such as pro-life, traditional marriage and ending human trafficking with their investment offerings seems to resonate with investors across the globe.

Inspire growth has gained them recognition as the #8 fastest growing registered investment advisor (RIA) firm in the nation in 2018, according to Financial Advisor Magazine’s “Top 50 Fastest Growing RIAs” annual report.

Inspire’s Discretionary Assets Under Management (AUM) has grown another 129% so far this year, bringing total assets to $572M as of August 2019.

About Inspire Investing

Inspire Investing is a leading biblically responsible investing firm that specializes in index based, biblically responsible solutions. All solutions utilize the innovative Inspire Impact Score methodology, which measures a company’s positive impact on the world to identify companies that align with the values of faith-based investors.

Inspire also donates 50% or more of their own corporate profits generated from management fees to support impactful ministry projects around the globe. Most recently Inspire adopted a village in the coffee farming mountains of Guatemala and is working to provide a church building, clean water, improved education, a fully functional medical clinic, and child sponsorship to completely transform the lives of the those living in that impoverished village.

Visit to learn more about Inspire’s biblically responsible investment products and inspiring impact projects.



Altum Report: Performance Study of Biblical Values vs S&P 500

Download PDF Report Here


The decision to invest in one place rather than another, in one productive sector rather than another, is always a moral and cultural choice.

– Saint John Paul II, Centesimus Annus 36



Executive Summary

Christian Principles – The value of integrity

The aim of this report is to show that including Catholic Social Teaching criteria in the selection of investments does not detract from profitability, rather it enhances it. In our case, the ethical criteria we apply when determining our investments are governed by Altum Investment Guidelines based on four pillars:

Pilar 1: Promotion of human life
Pilar 2: Promotion of human dignity
Pilar 3: Promotion of family
Pilar 4: Care and protection of creation


In this report, we wanted to work on a real portfolio, that is why we chose the components of the S&P 500 Index as of 1st of January 2019.

The profitability of the portfolio that complies with Altum’s Investment Guidelines is consistently superior to the portfolio whose companies’ conflict with Catholic doctrine. Moreover, the Altum Compliant portfolio has outperformed the Non-Compliant portfolio by 3.18%, 0.94% and 0.19% annualized over the past 3, 5 and 10 years, respectively.

As is often the case in this field of research, we can only draw conclusions but not causality. Do companies perform better by respecting the principles of Catholic teaching or is it respect for Catholic principles that make them better companies?


“I will do my best”.

It is undeniable that Socially Responsible Investment is increasingly present in the world of finance and has come to stay.

The preservation of the environment, the reduction of toxic emissions and the preservation of the dignity of workers are very positive criteria and initiatives when making investment decisions. In fact, Christian anthropology has presented these approaches since its beginnings.

For the Christian investor, however, the current approach of Socially Responsible Investment may not be sufficient.

For instance, there are real cases in which a company has a powerful policy to reduce its toxic emissions, impeccable treatment of its stakeholders and an irreproachable history of corruption. At first glance, this company would be perfectly investible. However, would the approach change if this company used human embryos in its R&D department? What if, through its philanthropic activity, this company were funding lobbies that openly support abortion? Would it be consistent with the teaching profession to invest in that company?

St. Augustine said, “God created man so that there would be a beginning” (The City of God XII, 20,4). Discovering new horizons and beginning new things is intrinsic to human beings. In the case of Altum, we seek coherence between the Catholic Teaching and financial investments, and this is the raison d’être of this report: one can invest with integrity and obtain an adequate return. It is a matter of moving from socially responsible investing to faith-consistent investing. The first step towards this objective is not to put ourselves, our fears, in the way, rather we should simply say to ourselves, “I will do my best”.


As previously mentioned, the 500 companies composing the Standard & Poor’s 500 (S&P 500) as of 1st of January 2019 have been analyzed (see appendix to access the components). This stock market index includes the 500 largest American companies. It is a renowned benchmark index in the world of asset management and is considered the best indicator of large companies in the United States, as it involves 9.9 trillion of dollars of capitalization and covers approximately 80% of its market.

In order to analyze the companies from a Catholic perspective, we have first elaborated the Altum Investment Guidelines, which are based on the Compendium of the Social Doctrine of the Church, encyclicals, pastoral letters, doctrinal documents as well as principles of socially responsible investment published by different Episcopal Conferences.

In addition, we have counted on the advice of the Altum Ethical Committee, experts of recognized prestige in the fields of Catholic doctrine, bioethics, Christian anthropology and the environment, for its insights and application to financial investments.

Finally, we apply the Altum Investment Guidelines to each of the companies. In doing so, we access both public and private sources of information, as well as establish direct dialogue with the companies to determine whether or not they comply with the Altum Investment Guidelines.

We are aware that the perfectly ethical and pure company does not exist. It is impossible to control the behaviour of a company’s CEO, its Board of Directors or its employees. However, our actions define us and we can objectively evaluate whether:

To give validity to the analysis we must provide evidence. For this reason, in all cases of non-compliance, we have obtained sufficient evidence to prove this in a specific manner.

As a result of the ethical analysis we created a first classification that generates two portfolios which we will name in the report as follows:

This report is not intended to highlight, discredit or enhance any particular company. Therefore, we have placed special emphasis on the fact that the report is blind, i.e., no component of the S&P 500 can be unambiguously and directly identified throughout the analysis. In any case, should the reader be interested in obtaining information on specific companies, we invite him or her to contact us.

With the purpose of emulating the methodology applied by the S&P 500 index and in order to capture the past performance (backtesting) of each of the portfolios, we have used the objective criterion of assigning each component the same weight in the portfolio with a monthly rebalance.



The main thesis of this report is that including ethical and moral criteria related to Catholic doctrine significantly improves the outcome of the investments.

The result is that observing the performance of this universe (which we consider sufficiently representative) in a period of 3, 5, and 10 years (commonly used to represent short, medium and long term horizons), it would always have been more profitable to invest in companies that comply with Catholic teaching than in those that do not comply.

Analysis – Altum Investment Guidelines:

We analyzed the universe of companies from four different perspectives: compliance with Altum Investment Guidelines, market capitalization, Sharpe ratio and GICS classification.

Of the 500 components of the S&P 500, 52.4% (262 entities) comply with the Catholic teaching. The remaining 47.6% (238 companies) fail to meet at least one of the criteria of Catholic doctrine.

Classifying this investment universe according to Altum’s pillars, the aspect where companies fail most is in the promotion of the family (206 companies), followed by the promotion of life  (97 companies), the promotion of human dignity (59 companies) and the care and protection of creation (6 companies).


Analysis – Market Capitalization

Once the companies have been classified qualitatively as Altum Compliant / Altum Non-Compliant, we then used quantitative criteria in order to obtain a more in-depth analysis. Specifically, we have divided the S&P 500 components into four large groups according to their size (market capitalisation on 1st of January 2019), which will help us to make a more accurate analysis of the results (refer to table on the right).


Following this classification, of the 500 companies of the S&P 500, 94 correspond to Mid Caps, 304 to Large Caps, 82 to Mega Caps and 20 to Giga Caps and the map of the investment universe, in proportions, would look as follows:

One of the keys to this analysis is to understand whether there is a relationship between the size of companies and the number of defaults. To do this, we have made a normal distribution for each of the four groups.

The result is that the larger the size of companies, the greater the number of incompliances per company. It is an interesting fact that all of the 20 Giga Caps are Non-Compliant, where the minimum amount of breaches is 3, the maximum is 7 and the average is 5.8.

Analysis – Performance

When selecting an investment portfolio, it is important to be able to classify the portfolio not only on the basis of ethical compliance, but also on the basis of performance. This is the reason why, we have classified the companies in the following table according to their size, compliance and their performance at 3, 5 and 10 years.

Two conclusions can be drawn from this data:

Analysis – Risk / Return

Looking at absolute profitability is insuffcient for in-depth financial analysis.

This is why we have also studied the relationship between the profitability and risk of each of the two portfolios. To do so, we have used the Sharpe ratio, which allows the investor to measure the return on an investment according to their risk. The higher the Sharpe ratio, the better the return on the risk-adjusted investment. The results for each of the two portfolios are as follows:

The Sharpe ratio by itself does not offer value, but for it to be really useful it must be used by comparing the ratios of different portfolios. Doing this exercise we see that the Sharpe ratios of the Altum Compliant portfolio at 3, 5 and 10 years are always higher than those of the Altum Non-Compliant portfolio, in other words: the Altum Compliant portfolio offers a higher return for the same level of risk than the Altum Non-Compliant portfolio.

Analysis – Classification by sector

It may have been felt that the application of Catholic teaching to investment decisions would imply an excessive sectorial concentration. As presented below, this is false.

We have analyzed both portfolios using the GICS (Global Industry Classification Standard) breakdown commonly accepted by the investment community to determine the productive sector to which a company belongs. The results are as follows:

The Altum Compliant portfolio is consistently more balanced and diversified than the Non-Compiant portfolio. If the average per sector would be 9.09%, the standard deviation of the Non-Compliant portfolio is 42% higher than the Compliant portfolio, indicating a greater dispersion of the portfolio resulting in excessive concentrations (as may be the case of the financial sector, where 20% of the Non-Compliant portfolio is concentrated).

It is worth highlighting a specific aspect: the presence of the Communication Services sector in the Compliant portfolio is practically nil (0.38%). Without looking to causality, from an ethical  standpoint, the companies belonging to this sector are the ones whose non-compliance is mainly related to the promotion of life category, who encourage the pornographic industry and that  lobby against religious freedom (of any creed).

According to the data analyzed, we can draw several conclusions:

Promotion of human life

The following are the results of the analysis of the 500 companies from the point of view of the promotion of human life, from conception to natural death.

Altum Investment Guidelines – Promotion of life:

  • We seek to invest in companies/securities that support policies and initiatives pursuing to protect human life at every stage of its existence, from the moment of conception until natural death.
  • Respect for the life of the unborn: The Fund shall avoid investing in companies/securities involved directly or indirectly in the practice of abortion or manufacturing of abortifacients and/or contraceptives.
  • Protecting from instrumentalization of Procreation: The Fund shall avoid investing in companies/securities involved in embryonic stem cell research, fetal tissue/embryo-derived stem cell research or human cloning.
  • Promoting “culture of life” vs the establishment of the “culture of death” (St John Paul II): The Fund shall avoid investing in companies/securities involved directly or indirectly in the practice of euthanasia, death penalty or involved in the production and sale of indiscriminate weapons or weapons of mass destruction.

While it would be logical to think that in the promotion of life non-compliance comes from some link to the armament world, the data show that non-compliance comes mainly (68%) from having some kind of relationship with the abortion or contraceptive industry.

To highlight a few examples: 

Of the 500 companies, 92 (18.4%) are involved in actively supporting (donations) abortion industry entities whose main activity is the administration of abortifacient drugs, the performance of abortions and/or the promotion of pro-abortion laws at any stage of pregnancy. An example of this type of receiving entity is Planned Parenthood, which statistically accounts for 320,000 deaths per year and has revenues of about $1.5 billion per year. As one of the main recipients of funds from companies in the S&P 500 index and their openly anti-life practices, we recommend the reading of the document that the American Episcopal Conference published in 2017, describing in greater detail the activities of this entity.

A number of 23 companies experiment with tissues obtained from human foetuses that result either in irreparable damage to the foetus or the destruction of the foetus itself.

There are 15 companies that are directly involved in the development of weapons with indiscriminate effects, i.e. weapons that are incapable of distinguishing between civilians and combatants (of which 14 are involved in the manufacture of nuclear weapons).


Promotion of human dignity

The following are the results of the analysis carried out from the point of view of the preservation of human dignity at all times.

  • We seek to invest in companies/securities that manifest responsible management practices, behave responsibly towards preserving human dignity and operate with integrity (respect for labour law, no corrupt practices or unfair business practices) in the interaction with its stake-holders (employees, competitors, customers and suppliers).
  • We seek to curb access to pornography: we avoid investing in companies/securities with a significant involvement in producing, directing, publishing, distributing and/or retailing of adult entertainment materials of pornographic nature.
  • We promote man’s freedom from addictions: we positively weigh companies/securities that promote freedom from addictive behaviours, especially those caused by alcohol, tobacco and gambling.
  • We defend religious freedom: we avoid investing in assets from governments or companies who promote or carry out religious persecution against any faith, or deprive people from the right of religious freedom.

Humans are the “only creature on earth which God willed for itself” (Gaudium et spes, 24). This is important to emphasize since the person is not loved for his/her abilities, knowledge or economic situation, but for the simple fact of being a person. The defence of dignity is closely linked to the preservation of freedom, understood as one’s

capacity, in his/her free action, to direct their actions towards Good (Liberatis conscientia, 27).

We can see different examples in the corporate world where the freedom and dignity of man is undermined. From the employment of minors in factories, to not guaranteeing the safety and health of workers or of the consumers themselves. However, it is striking how in the business world there are new ways of attacking freedom, such as seeking to eliminate religious freedom or encouraging addictive behavior in man, with the pornographic industry having a significant weight.

Let’s look at how the S&P 500 companies behave for each of these three big blocks:

Dignity of employees: It is prudent to assume that all S&P500 member companies have thousands of employees on the payroll. This makes it virtually impossible to accurately measure the specific one-to-one behaviour of companies towards their workers or their stakeholders. However, it is possible to measure and evaluate the controversies that these companies may have had regarding the treatment of their workers, which is exactly what we have done.

The dignity of employees is one area of good news in our report: only 2% of the index companies show severe and persistent controversies in terms of specifically violating the rights of their workers and or the use of child labour.

Pornography: 5.6% of the companies in the index are involved in the world of pornography.  Within this percentage, the breakdown of the means used to distribute pornographic material would be as follows: retail market, 32%; film industry, 18%; Internet, 25%; television, 39%. It is perhaps worth reflecting on whether, given the frontal opposition that pornography presents against the Social Doctrine of the Church and its relatively small size within the investment universe … would it not be worth eliminating all traces of pornography in investment portfolios? Particularly if there are alternatives, such as media companies (risk sector for pornography) that do not profit from the pornographic industry or even hotel chains that disassociate themselves from the mass (creative minorities) saying publicly that they eliminate access to pornography from television programming in their rooms.

Religious freedom: 36 companies out of the 500 analyzed (7.2%) have been openly opposed to the freedom of religious worship, of any creed, through their adhesion to different lobbies whose main task is to eliminate conscientious objection for religious reasons. This implies that a doctor cannot object to performing an abortion nor a Catholic priest to marrying people of the same sex.

Taking a phrase repeated on different occasions by Mons. Munilla, Bishop of San Sebastian, “our time is characterized by destroying freedom in the name of freedom”.

Promotion of family

In the following, we present the results of the analysis carried out taking into account the promotion of the family and its value in society.

Altum Investment Guidelines – Promotion of family:

  • We seek to invest in companies or assets that promote and recognise social virtues and the social value of the family.
  • We avoid investing in companies or assets whose actions and practices actively attack the Catholic conception of marriage and family.

One of the main social changes that the Church is pointing out in recent times is the attack on the institution of marriage and family. The doctrinal documents are very numerous and above all, at present, Pope Francis openly denounces when he speaks of the influence that is having the gender ideology which “denies the difference and reciprocity in nature of a man and a woman and envisages a society without sexual differences, thereby eliminating the anthropological basis of the family.” (Amoris Laetitia, 56)

The reasoning behind this statement is that, according to Paolo Donati, the ideology of gender “holds that the family is an institution of the past, and that it is necessary to liberate genders and generations from the bonds of a tradition that is already overcome” (La familia como raíz de la sociedad (“The family as the root of society”), 2013, Madrid, BAC).

39% of the companies in the index are directly related to the promotion and/or sponsorship of initiatives that promote gender ideology and 34.4% support entities that promote gender ideology in multiple ways, assuming that different sexual orientations do not exclude any type of sexual preference (including paedophilia, incest, polygamy or zoophilia).

20.2% of companies are involved in supporting legislative changes contrary to Christian anthropology, such as the colloquially called “Bathroom Bill” in the United States. This law encourages people to use public restrooms based on their biological sex as determined by their birth certificate. Numerous companies (inside and outside the S&P 500) have positioned themselves in favor of eliminating this law on the grounds that regulating the use of public services is discriminatory.

We understand that these concrete practices carried out by the entities analyzed come into conflict  with  the  catholic Magisterium, as Pope  Francis develops in Laudato Si’ (N. 155): “The acceptance of our bodies as God’s gift is vital for welcoming and accepting the entire world as a gift from the Father and our common home, whereas thinking that we enjoy absolute power over our own bodies turns, often subtly, into thinking that we enjoy absolute power over creation. Learning to accept our body, to care for it and to respect its fullest meaning, is an essential element of any genuine human ecology. Also, valuing one’s own body in its femininity or masculinity is necessary if I am going to be able to recognize myself in an encounter with someone who is different. In this way, we can joyfully accept the specific gifts of another man or woman, the work of God the Creator, and find mutual enrichment. It is not a healthy attitude which would seek “to cancel out sexual difference because it no longer knows how to confront it”.”

Care and protection of creation

The fourth and final pillar analyses the activities and behaviour of companies in their relationship with the environment.

Altum Investment Guidelines – Care and protection of creation:

  • We seek to promote, through investment, positive initiatives performed by governments/companies that implement the highest standards in environmental behaviour.
  • We seek to promote, through investment, the implementation of environmental stewardship aimed at preserving the Creation for future generations, valuing practices and actions that promote the reduction of abusive environmental impact.
  • We seek to avoid investing in companies/securities implicated in severe controversies related to their impact or abuse on the environment and natural resources.

As far as this analysis is concerned, a number of points must be borne in mind:

On the one hand, in an index such as the S&P 500, given the size of the companies analysed (let us not forget that they are the leading companies in the USA), all of them large multinationals with entire departments dedicated exclusively to CSR (Corporate Social Responsibility), it would be strange to find companies that reliably carry out abusive practices with regard to the environ- ment. However, as we will see below, there are.

On the other hand, carrying out a complete and faithful analysis from the point of view of caring for the environment faces two main obstacles: i) the opacity of companies when it comes to  providing information (as we have experienced at the time of compiling this report) and ii) the inconsistency in the valuation of companies that make rating agencies from an ESG (Environmental, Social and Corporate Governance) point of view. An example of this is that of the 4 agencies that we use for our analysis in ESG aspects, the dispersion of ratings for the same company can be strikingly broad. For example, in the analysis we have seen that for the 500 companies, the average deviation between one agency and another is 2.85 points (on a scale of 1 to 10). In other words, on average, we found differences between the ratings of different agencies for the same company of almost +/- 30%. Below is an example that shows the dispersion of ratings for 100 companies of the S&P 500 taken randomly (rating in base 1 – 10, being 1 the worst rating and 10 the best):

This generates a certain scepticism towards the ratings of third parties and we prefer to analyze companies internally, one by one, to evaluate their compliance with respect to the care and protection of creation.

If the use of rating agencies is a useful tool for our analysis, we must act with caution since the lack of harmonization of criteria can lead to inappropriate decisions. This is the reason we chose not to rely on a 3rd party rating but rather prefer to analyze companies and their respective caseloads one by one.

One of the key aspects in our analysis is to apply the Anglo-Saxon concept of environmental stewardship (co-responsibility with the environment with the aim of preserving it for future generations), since “man, being a person, occupies a central place in the world as “lord and custodian” of nature, having the responsibility to govern it with wisdom, justice and intelligence” (Excmo Rvdmo Mr. Manuel Monteiro, La cuestión ecológica). In other words, the role of man is not that of “absolute and immeasurable master, but of an administrator of the kingdom of God called to continue the work of the Creator” (Saint John Paul II, The Commitment to Avoiding Ecological Catastrophe).

The analysis reflects that 6 companies out of the 500 analyzed have repeatedly and consistently shown abuses and controversies in the care of creation. The most affected sectors are materials and energy, and in terms of size, it is divided equally between Large (2 companies), Mega (2 companies) and Giga (2 companies) sizes. Environmental non-compliant companies were already non-compliant in other sectors, with an average noncompliance score of 4.5 per company.

It is interesting to mention a paradox that currently occurs when talking about ecology in the media. On the one hand, it supports the defense of the environment, animal life, and the atmosphere in order to improve the quality of life. On the other hand, there are environmental movements that promote (and with increasing intensity) that the most effective remedy for preserving the health of the planet is to educate the population so that they have fewer children, using anti-natalist policies based on incentivized or selective abortion, as well as sterilization and the widespread distribution of contraceptives, which are intrinsically contrary to Catholic doctrine.

It is therefore important to bear in mind which elements related to the environment support the man-creation relationship defended by the Catholic teaching and which elements, protected by something positive (concern for the planet, care of animal species, etc.), in reality hide ideologies



We have seen in this analysis that applying criteria similar to catholic morality reduces the number of companies that can be invested, but this does not necessarily have to have a negative impact, on the contrary: it is perfectly possible to build a portfolio that complies with catholic doctrine and that not only is also solid and properly diversified, but also when comparing returns over 3, 5 and 10 years against a portfolio that does not incorporate Christian criteria, is consistently more profitable.

We are confident that the analysis and results contained in the report can serve as food for thought. On the one hand for the catholic-sensitive investor, to encourage him/her to become a “creative minority”, to get out of mainstream thinking and discover alternatives that can unite faith and consistency when investing (faith-consistent investing). On the other hand, for the managers and directors of the companies analysed, we are convinced that if this report ever gets into their hands, they will know how to respond and adapt their policies so that under no circumstances will the end justify the means.


Borja Barragan Frade
Jaime Barragan Campos


Notice to any user of this report

This report is issued by Altum Faithful Investing, EAFI, S.L. (Altum).


 The information used in this report is obtained from sources believed to be reliable. However, no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability or usefulness of any information. This disclaimer applies to both isolated and aggregate uses of the information.

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 The information contained in this report does not constitute a recommendation, or confirmed offer to sell or the solicitation of an offer to buy any financial product or service; and should not be relied upon in connection with any investment decision.

Altum makes no warranty, expressed or implied, as to the results obtained from the use of the information on this report.

Altum makes no warranty, expressed or implied, of the accuracy, adequacy completeness, legality, reliability or usefulness of any purpose of this report.


 The violations and non-compliances presented within this report are those established by Altum under the Altum Investment Guidelines ( which may differ from your own. If you find any errors or omissions, please report them to Altum. In addition, changes may be periodically made to the information herein; data can also quickly become out-of-date. Altum may, at any time, revise the information on this report without notice and makes no commitment to update this information.

Altum has carried out the ethical and moral analysis following the criteria of the catholic magistery. Please do not hesitate to contact us at should you have any inquiry.


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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

For the remainder of this paper please download the full PDF below

Performance Attribution of the First Biblically-based SRI Index


A recent study by Shane Enete, CFA at the Biola University Inspire Research Institute For Biblically Responsible Investing (BRI), has shown that applying the Inspire Impact Score methodology to portfolio security selection generated alpha in a portfolio when compared to the broader, non-Inspire Impact Score screened benchmark. This finding adds new data to the debate of what effect values-based screening (Socially Responsible, Biblically Responsible, ESG, etc) has on the performance of a portfolio.

At Inspire we believe that good values and good returns are not mutually exclusive, and the findings from this study validate that belief. While screening a portfolio does not guarantee alpha generation, this study clearly shows that using the Inspire Impact Score methodology does have the potential to provide outperformance when compared to a non-screened benchmark.


For the purposes of this study, a traditional attribution analysis method was applied to the Inspire Small/Mid Cap Impact Equal Weight Index (”Index”) over a five year period. The study compared the contribution to overall returns from three variables:

1) Equal weight composition;
2) Sector bias; and,
3) Inspire Impact Score security selection methodology.

These three variables were then isolated and compared against the benchmark to determine the effect each individual variable had on overall performance.

“The results of the study found that the Inspire Impact Score methodology of security selection resulted in an annualized 4.7% outperformance compared to the non-screened benchmark.”

Performance data chart

Figure 1 – SP500

The remaining variables of sector weighting and equal weight composition had a negligible effect on the overall performance. (See Fig. 1) These findings pave the way for additional research into the underlying reasons as to why companies with higher Inspire Impact Scores provide the potential to outperform companies with lower Inspire Impact Scores, and the Biola University Inspire Research Institute for BRI is up to the task, but what is clear is that companies that are a blessing to their customers, communities, workplace and the world have the potential to outperform their peers and that investors who are seeking to create profit and impact do not necessarily need to resign themselves to substandard returns. Indeed, it is possible that they could experience above-average returns by including Inspire Impact Score screening in their investment strategy.



Performance Attribution of the First Biblically-based SRI Index

Shane Enete, CFA
Biola University

Working Draft


In the U.S., two of the most important investment trends over the last 10 years have been the rise of index investing and the rise of Sustainable, Responsible and Impact (SRI) investing. So, it would make sense that new indexes would emerge based on SRI principles. One such index is the new Inspire Small/Mid Cap Impact Equal Weight Index, which is the first biblically-based SRI index. This paper briefly discusses the methodology of this index and shows that its strong back-tested risk-adjusted returns (relative to its non-SRI S&P benchmark), are not due to sector bias (as one would expect), but are attributed to favorable stock selection within each industry sector. This index is likely the beginning of a wave of more sophisticated passive products that will meet the needs of niche investor populations better than the active products of the past.

I. Introduction

In the U.S., two investment trends have been dramatic over the last 10 years:
  •  the rise of index investing, and
  •  the rise of Sustainable, Responsible and Impact (SRI) investing
As of 2016, flows from active to index funds have surpassed one trillion dollars and SRI Investing has achieved $9 trillion of assets under management (see Figures 1 and 2). So, it would make sense that these two trends would collide and new SRI indexes would emerge. One such index is the Inspire Small/Mid Cap Impact Equal Weight Index. This index has a unique faith-based construction that has performed well relative to its non-SRI S&P benchmark. This is likely the beginning of a new breed of indexes that will serve niche investors better than previous active products of the past.

Figure 1: Mauboussin, Michael, J., Dan Callahan, and Darius Majd, “Looking for the Easy Game,”Credit Suisse, 2017,
Figure 2:
U.S. SIF Foundation

II. Index Construction

Unlike most existing SRI indexes2, this index focuses on small-to-medium companies, weighting its index constituents equally3. In addition, this is the first passive SRI product that explicitly ties the construction of its index to a biblically-based worldview, in particular, a reformed, non-denominational Christian worldview that emphasizes traditional Biblical views on all environmental, social and governance issues. Although applying a Christian worldview to active investing products has been done for more than 100 years4, this is the first passive index based on “Biblically Responsible Investing” (BRI) principles to be introduced to the financial markets. The Inspire index is constructed using an Impact Scoring methodology that essentially overweights companies that are aligned with biblical values and excludes companies that are not aligned with biblical values. Companies with a high Impact score may have one or more of the following characteristics:

  • inspiring primary business activity that uplifts society
  • positive environmental policies
  • support biblical values through philanthropy
  • operate with a perceived high level of integrity

Companies that have a low Impact Score would likely be involved in the enabling of certain types of activities that are contrary to what the Bible says will enable human flourishing, such as abortion, pornography, labor abuse, non-traditional family values, and gambling.

2For example: MSCI’s KLD 400 Social Index, FTSE’s 4Good Index Series, Calvert’s Social Index, Dow Jones’Sustainability Index
3Chow et al., (2011), found a significant improvement in returns when equally-weighting an index (versus marketcap weighting)
4During the late 1800s, the Quakers and the Methodists followed investment practices that prohibited investing in companies that were involved in slavery, smuggling and conspicuous consumption


III. performance

i. Risk-adjusted Returns

Probably the biggest criticism of SRI investing is that  constructing a portfolio from a restricted universe of opportunities will impose too great a cost on the portfolio’s risk-adjusted returns, relative to their unrestrained counterparts. In other words, when trying to “do good,” there will be too heavy a cost on the portfolio.

When looking at the Inspire Small/Mid Cap Impact Equal Weight Index, early indications show a possible positive risk-adjusted performance benefit when using Inspire’s Impact Scoring methodology to construct their index. From 2012 to 2016, the Inspire index outperformed an equally weighted 50/50 blend of the S&P 400 and S&P 600 by over 4%, on an annualized basis, while maintaining a similar standard deviation.

This back tested performance result is not inconsistent with many academic studies over the years, which have shown that there is either a neutral or small benefit to risk-adjusted performance when adding different types of SRI criteria to the managing of an investment product.5
5Revelli, C. and Viviani, J.-L. (2015), Stone et al. [2002],

ii. Attribution

Another significant criticism of SRI investing is that sector bias is really what drives the performance. DiBartolomeo and Kurtz [1999] demonstrated that the positive outperformance of one of the oldest SRI indexes, the Domini 400 Social index, was largely due to economic and sector exposures that are the result of the screening process itself. It would make sense that certain sectors, like oil and gas, would naturally “screen themselves out” of most SRI indexes looking to protect the environment. So, given the possibility of sector biases embedded in SRI products, should it be assumed that any outperformance relative to a benchmark is simply due to large “sector bets” that happen to go in the favor of the SRI index? When conducting a performance attribution on the Inspire index relative to the S&P benchmark, there is no evidence that sector bets contributed to the outperformance.6
6Using the BHB model for attribution (Brinson, Hood, and Beebower, 1986). GICS sectors were used for the S&P benchmark; However, for the Inspire index, the sectors were first determined using The Industrial Classification Benchmark (ICB) sectors and then they were unofficially mapped to a GICS sector manually. An “Other” sector was used, which primarily represents the Real Estate sector, which was carved out of the S&P Financials sector during September of 2016. The small difference in alpha between tables 1 and 2 (4.4% vs. 4.2%) is due to rounding errors associated with the attribution methodology

IIV. Conclusion

Given the continued popularity of both passive index and SRI investing, new SRI indexes will likely proliferate during the next couple of years. The creation of the Inspire Small/Mid Cap Impact Equal Weight Index is the beginning of a wave of more sophisticated passive products that will better meet the needs of niche investor populations (e.g., faith-based investors) than the high-fee active products of the past.


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