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.


[Bauer, Koedijk, and Otten, 2005] Bauer, Rob, Kees Koedijk, and Roger Otten (2005). “International Evidence on Ethical Mutual Fund Performance and Investment Style.” Journal of Banking and Finance , 29-7 (2005), pp. 1751-1767. (as cited in Milevsky et al., 2006).

[Brinson, Hood, and Beebower, 1986] Brinson, Gary P., L. Randolph Hood, and Gilbert L. Beebower. (1986). “Determinants of Portfolio Performance,” Financial Analysts Journal , vol. 42, no. 4 (July/August):39:44.

[Chow et al, 2011] Tzee-man Chow, Jason Hsu, Vitali Kalesnik, and Bryce Little (2011). “A Survey of Alternative Equity Index Strategies” FAJ, Volume 67,5, 2011

[DiBartolomeo and Kurtz, 1999] DiBartolomeo, Dan, and Lloyd Kurtz (1999). “Managing Risk Expo- sures of Socially Screened Portfolios.” Northfield Information Services. (as cited in Milevsky et al., 2006)

[Goldreyer, Ahmed, and Diltz, 1999] Goldreyer, Ahmed, and Diltz (1999). “The Performance of Socially Responsible Mutual Funds: Incorporating Sociopolitical Information in Portfolio Selection” Managerial Finance , 25-1 (1999), pp. 23-3. (as cited in Milevsky et al., 2006).

[Guerard, John B., Jr., 1997] Guerard, John B., Jr. (1997). “Is There a Cost to Being Socially Responsible in Investing?” TheJournal ofInvesting , 6-2 (1997), pp. 11-18. (as cited in Milevsky et al., 2006).

[Hamilton, Jo, and Statman, 1993] Hamilton, Sally, Hoje Jo, and Meir Statman (1993). “Doing Well While Doing Good? The Investment Performance of Socially Responsible Mutual Funds.” Financial Analysts Journal , 49(6) (1993), pp. 62-66

[Milevsky et al., 2006] Milevsky, Moshe, Andrew Aziz, Allen Goss, Jane (Thomson) Comeault and David Wheeler (2006). “Cleaning a Passive Index” Journal of Portfolio Management , Spring 2006:110-118.

[Revelli, C. and Viviani, J.-L., 2015] Revelli, C. and Viviani, J.-L. (2015). “Financial performance of socially responsible investing (SRI): what have we learned? A metaanalysis.” Business Ethics: A European Review , 24: 158:185. doi: 10.1111/beer.12076.

[Stone et. al, 2002] Stone, Bernell K., John B. Guerard, Jr., Mustafa N. Gultekin, and Greg Adams (2002). “Socially Responsible Investment Screening: Strong Evidence of No Significant Cost for Actively Managed Portfolios” Working paper, Marriott School of Finance, Brigham Young University, October 2002. (as cited in Milevsky et al., 2006).

A Biblical Argument for BRI

“A Biblical Argument for BRI” is a paper from the Inspire-Biola Research Institute for Biblically Responsible Investing written by Shane Enete, CFA.  Read the full paper below:  

A Biblical Argument for BRI

By Shane Enete, CFA

Assistant Professor of Finance, Biola University
In the beginning, God’s commandment for us is to work and watch over the land (Genesis 2:15).

While our culture has excelled at becoming more productive in our “working of the land” through modern portfolio theory and passive investing, we have gradually gotten worse at fulfilling the second part of God’s commandment, namely, to “watch over” the very land that we are working.

Christian investors can respond to this weakened ability to watch over the land by moving towards Biblically Responsible Investing (BRI).

In the beginning, “the LORD God took man and put him in the garden of Eden to work it and watch over it.” (Genesis 2:15, NLT, emphasis added) This is a Biblical framework for how investing should be. 

To “work the land” effectively means to enable it to produce fruit. 

To “watch over the land” effectively means to enable the garden to flourish in the midst of its fruit production. 

Since Christian investors do not necessarily find themselves with hands full of dirt as they work and watch over our world, does this mean this early job description from the Lord does not apply to a Christian investor today? How could working and watching over the land be done well for a Christian investor today?

The Biblical Argument For BRI

Work The Land

Over the last 400 years, a few key financial ideas have enabled an abundant working of the land.

For this paper, I am going to highlight three such financial ideas that have particularly helped us harvest fruit from the land: the jointstock company (1609), modern portfolio theory (1952), and passive investing (1990s)

The first crucial financial idea that allowed for a great increase in the fruitfulness of the land was the invention of the joint-stock company. A joint stock company is its own legal entity, which allowed investors to buy “shares of stock” in that independent company. The first Joint-Stock company was the Dutch East India Company in 1609.

Before the joint-stock company, any investor who wanted to invest in a company needed to become a partner of that company, which entailed a lot of paperwork and commitment. And if the investor wanted to sell his partnership position, more paperwork (and often lawyers) were needed to get out of the partnership.

One of the greatest features of owning stock in a joint-stock company was that the owner is free to sell that share of stock to any willing buyer without needing any kind of permission by the company.

Once the joint-stock company was created, money was pooled together more easily. This injected significant “liquidity” into the financial markets.

But, it was not until the large scale adoption of modern portfolio theory (MPT) that stock investing was moved from the halls of the rich to the living rooms of the common citizen.

MPT, first articulated by Harry Markowitz in 1952, argues that an investor should not put all of his or her eggs in one basket.

While this may seem like a simple concept, the revolutionary idea of MPT was that all investment opportunities should not be considered just individually, but also be evaluated together as a potential portfolio. Evaluating all investment opportunities in the context of a portfolio led the average risk-conscious investor to include stocks in their investment accounts, which eventually led to billions of dollars of retirement money1 being injected into the stock market.

The last powerful financial idea that I will mention, which served to further enhance the fruitfulness of the land, was the invention of “passive investing.”

Passive investing is when investor money is pooled together and then given to a computer that simply buys a “list of companies” (i.e., index). An index can represent exposure to any kind of desired business risk (e.g., oil companies, car companies, European companies).

Since the holdings of the index list are mostly stationary, the portfolio is not actively managed, and is said to be “passive.”

Bill Sharpe wrote a paper in 1991 called, “Arithmetic of Active Management” where he showed the simple math that, given the laws of arithmetic, half of all money managers will earn less than average returns (less than half when you subtract management fees).

By comparison, passive funds, which have minimal costs2 , should be expected to outperform most professional managers. This logic has consistently proven to be true by academic research. For example, one recent study showed that passive funds outperformed 76% of active mutual fund managers from 2003-20133.

Given the simplicity and cheapness of passive investments, investors have stampeded towards passive products and these passive products have led to widespread ownership of stocks by American households (55% of all U.S. households4, 66% of all 401k assets5, more than half of all U.S. public pension money are invested in stocks as of the mid-2000s).6 This increase in stock ownership means companies produce more goods and services since they have more access to capital for their business ideas.

1 Smith, Mark B., Equity Culture, Farrar, Straus and Giroux, New York, 2003 (pg. 219-220)

2 The most popular passive product, Vanguard’s S&P 500 Index has an annual fee of 0.05% vs. 1.0% for the average active fund.


4 Gallup’s annual Economy and Finance survey, 2015

5 As of 2014,

6 Pension and Investments 2012 annual plan sponsor survey

Watch Over The Land

As the world economy has proliferated in goods and services, there has been a trend of less and less monitoring of those goods and services. To watch over the land means to understand the impact of our goods and services on the community. Before the joint-stock company, modern portfolio theory, and passive investing, owners of businesses had a shared liability with their business – if the business acted in a way inconsistent with the owners’ values, all investors in that company were legally liable, so investors put a high value on monitoring their investments.

If we fast-forward to today, it is a much different story. Because of the limited liability of owning a stock (no stock owner can lose more than their initial investment) and the lower risk of owning a portfolio of stocks, owners of stock typically own hundreds of companies.

Managers, who receive investor money from thousands of different stock investors, are no longer working alongside their investors.

One of the most serious consequences of this trend is that Christian stock owners, who often own hundreds of companies, may not know when their owned investments engage in activities that deteriorate human flourishing, such as funding abortion clinics or pornographic products.

One of the most popular investment products, the Vanguard S&P 500 Index, with $443 billion dollars of investor money, includes many companies who are acting directly against Biblical values. eValueator estimates that 73% of the 500 companies in the fund are acting in ways not consistent with Biblical values.

Christians need to do a better job of watching over their investments and ensuring that they are not endorsing (or profiting from) certain corporate behavior, through their stock ownership claims, that help to lead culture away from Biblical values.7

So, what is a Christian to do, then? Is the only solution to disengage from passive investing, altogether?

7 (as of 8/3/16)

Our Response

One simple solution is to move towards Biblically Responsible Investing (BRI). BRI is a movement of biblically inspired investment products that are able to combine the positive benefits modern portfolio theory and passive investing with a consciousness that these products need to be “watched” to ensure that Christian values of stewardship are being honored.

These BRI products are “watched” through their endorsing, engaging and excluding activities; they endorse companies that are acting especially consistent with biblical truth, but also engage and/or exclude companies that are not acting in ways consistent with Biblical truth.

While this type of “watching over” will always fail to be as effective as a single shared liability business investment, it is a step towards fulfilling God’s mandate to both work and watch over the land that has been entrusted to us.

Inspired Investing: An Introduction To Biblically Responsible Investing

Inspired Investing

An Introduction to Biblically Responsible Investing (BRI)

By Shane Enete, CFA

Assistant Professor of Finance, Biola University

Biblically Responsible Investing (BRI) is a growing movement among Christian investors and investment firms, with significant potential for cultural impact. BRI is an investing approach that seeks to ensure that a Christian is investing in a way that is consistent with the moral standards of the Bible. Is BRI a helpful  investment approach? Or just a marketing ploy meant to exploit?

As this paper will argue, BRI products, through their excluding, engaging and endorsing activities, help Christian investors maintain their integrity and responsibility to biblical stewardship while actively investing in the stock market.

Discovering BRI

There is a growing movement among Christian investors to align their investments with biblical values. This movement is called Biblically Responsible Investing (BRI) and it is on the rise. But is BRI just a marketing gimmick designed to prey on Christians who see the word, “Bible,” and automatically direct their money to it without any thought about investment prudence? The answer is clearly “no” when the implications of being a stock owner are fully understood.

Stock Ownership Is Business Ownership

In order to understand the implications of being a stock owner, it is good to define what stock ownership really means. “Shares of stock” are certificates of ownership that an investor receives in exchange for investing money in a corporation.


“If you are a stock owner, you are a business owner.”

Once a corporation receives money from investors, the corporation buys “assets” (e.g., machines, land, property, etc.). These assets are then “managed” by managers who receive a salary so that they will, hopefully, be able to generate a profit while managing those assets. This profit belongs exclusively to the stock owners

For example, if a lemonade company received $250 from an investor, the company would hire a manager to buy a lemonade machine and some lemons, which they hope will generate sales that are in excess of expenses (i.e., profit).

So, given that stock owners “own” the profits of a company, then this would mean that a stock owner is a residual owner of the business, effectively making a stock owner a business owner.

However, most stock owners either do not know they own businesses, or really do not believe this is true. Perhaps this is because, for most companies, there are millions of other stock owners, so it seems like each individual ownership claim is too insignificant to be an actual ownership claim. But that is not true: Ownership is ownership, whether small or large.

One of the clearest signs that a shareholder is a business owner is that shareholders are asked to vote on all important company matters. Shareholders receive voting packets in the mail every quarter, and to vote is to be counted as a member; or, put another way, to cast your vote means you have certain rights within that company
that you are exercising, which were given to you through stock ownership.

Shareholders also receive dividends, which are company profits. This is the most important part of being an owner: entitlement to the company’s profits. As a company’s assets generate profits, they accrue to the owners of those assets.

1 A Comprehensive Dictionary of Psychological and Psychoanalytical Terms

Losing Integrity

There is a certain pride in owning, and profiting from, companies that are making great products (e.g., automobiles) and providing great services (e.g., hospital care). But, what if a company is not acting in a way that an individual would deem “responsible to society”?

For example, what if an individual had a strong moral conviction that it is not responsible to society to slaughter cattle for meat consumption? It would not be a source of pride for that individual to accumulate the profits of McDonald’s. In fact, if this individual discovers that they own McDonald’s, and continues to accumulate McDonald’s’ profit, that individual will eventually lose their integrity.

Integrity is defined as “the quality of being whole or undivided; moral consistency; honesty and truthfulness.”1  integrity comes from the word, “integer,” as in, whole number. When a person loses integrity, they become fractured; they are no longer a whole number.

One of the big psychological consequences of losing integrity is the gradual erosion of our sense of self.2

Many investors are at risk of losing their integrity.

The moment of truth comes when, as business owners, they actually look at what businesses they own. At that point they will need to make decisions about whether they want to continue to profit from certain companies that violate their internal sense of morality or stay true to their moral convictions. For example, a third-party values-based screening company, evaluator, recently released a list of 77 companies that directly fund Planned Parenthood.3

Many of these companies are members of the S&P 500 index, which means that the vast majority of investors in the world own at least a few of these companies. If an investor believes strongly that abortion is the destruction of human life, then to willingly receive the profits from companies that are helping fund abortions is evidence that this investor’s sense of self is eroding since they are not acting in a consistent way with their internal convictions. Another example would be Microsoft and their video game division, which sells three games that have graphic nudity. If an individual has a strong moral conviction that pornography harms society and they own shares in Microsoft, they are actually helping to finance the production of pornographic content, and sharing in the profits as well.



4 Games include: “Ryse: Son of Rome” (2013), “Fable III” (2011), “Fable II” (2008).

Strong Moral Convictions

So, what is an investor supposed to do? If the investor has weak convictions about moral issues, then there is not much that needs to be done; this investors’ integrity is not threatened by questionable corporate activity. But, if an investor has strong moral convictions, action should be taken. And for a Christian, action must be taken.

A Christian has a strong sense of moral conviction that is derived from the words of the Holy Bible. The Bible lays out a way of life that is considered “life and light” (i.e., truth) and, also, a way of life that is considered “death and darkness” (i.e., untruth). A Christian of high moral convictions will seek to “walk in the light” while “fleeing the darkness.” The loss of integrity would be the greatest for the Christian who has the strongest ideas of what is good and true, and does not act in accordance.

Or put another way, because light and darkness are well defined by the Bible, the Christian who acts in a way that is inconsistent with the truth that they know (i.e., taking the profits from a company that is profiting from abortions), will be the most at risk of losing integrity.

But, the reason to act for a Christian is not simply to maintain their integrity, it is to honor their Lord and Savior and their responsibility to Him to manage His assets according to His will for His glory.

The Owner of All Things

One of the truths set out in the Bible is that the Creator of the Universe, God, actually is owner of all things.

“Thus says the LORD: ‘Heaven is my throne, and the earth is my footstool; what is the house that you would build for me, and what is the place of my rest? All these things my hand has made, and so all these things came to be, declares the LORD. But this is the one to whom I will look: he who is humble and contrite in spirit and trembles at my word.'” Isaiah 66:1-2, ESV

This adds another layer to the investing conversation, because they are also stewards (i.e., managers) of what God owns. If this is true, a Christian that invests God’s money in a company that produces pornography has acted as a very bad manager, doing the very thing that God would not want to do with His money. If this is happening with the Christian’s full knowledge, there is a fundamental failure of that Christian’s Biblical stewardship responsibility — they are not acting like a good steward.

Therefore, when a BRI product helps a Christian take seriously their role as steward of God’s money through a combination of divesting, engaging and endorsing, that BRI product is serving the investor in a very meaningful way.

Besides protecting a Christian investors’ integrity and sense of biblical stewardship, the BRI product is also able to serve culture in a positive way. BRI gives Christian investors the opportunity to use their ownership influence to bring about positive cultural change. Many corporations take public (and non-public) stances on cultural issues such as abortion and gay marriage.

Many such corporations take these positions not because they are actually passionate about the cause, but rather because a special interest group is lobbying them and they think it is a good business decision to promote that cause. BRI provides a voice. This voice becomes more able to get the attention of corporations as more Christians invest in BRI products.

The BRI movement has already produced some important cultural changes in recent years, a few of which are listed below:

  • Exxon ends abortion philanthropy (2013)
  • Home Depot ends corporate LGBT activism (2014)
  • Hilton removes pornography from their hotels (2015)
  • Abercrombie and Fitch eliminates sexualized marketing (2015)
  • Chevron ends abortion philanthropy (2015)

1 A Comprehensive Dictionary of Psychological and Psychoanalytical Terms

Taking Action

Biblically Responsible Investing products are constructed in a way that is consistent with biblical truth. These products achieve a “consistency” with biblical truth by doing at least one of the following three things:

  1. Endorse companies that are acting especially consistent with biblical truth.
  2. Engage with companies that are acting in ways not consistent with biblical truth through shareholder activism, with the hope of changing the company’s behavior.
  3. Exclude companies that are acting in ways not consistent with biblical truth. It is important to note that many BRI investment products attempt to do a combination of all three of these activities, and excluding, engaging, and endorsing are, in many ways, complementary activities.

1) Endorse

One of the most fulfilling aspects of BRI is to reward companies that are especially living out biblical truth in how they operate by investing in their stock. What does it mean to live out biblical truth well? It is more than just avoiding what is “bad.” It is acting out the greatest commandment of the Bible, which is “to love God and love your
neighbor as yourself.”(5) Currently, the desire to endorse companies “loving God and their neighbor well” expresses itself in two different ways in the investment marketplace: (i) Impact Investing, or (ii) Best-in-Class Investing.


(i) Impact Investing

The first expression, known as Impact Investing, focuses on making investments that will specifically help to solve a social or environmental problem.

Examples of impact investments include:

  • Xylem (ticker: XYL), a publicly traded water infrastructure company, seeks to ensure that the world, particularly the poor, will have adequate access to water through the use of their technologies. Their vision is that they will use their technology, time and talents to help advance the “smarter” use of water.
  • A EUR 150 million European private equity fund invests between EUR 2-10 million in companies that provide clean electricity to rural communities in developing countries with limited access to energy.
  • A $65 million U.K. fund invests in a Fair Trade and organic-certified coffee cooperative located in Ecuador.

For more examples of impact investing, ImpactAssets 50 provides a selective list of 50 investment management firms that are engaged in impact investing and what they are doing.6

 (ii) Best-in-Class Investing

This second expression of endorsing companies “loving God and their neighbor well” is called Best-in-Class Investing, which focuses on only buying the companies within every sector that are leading the way in social, moral, and environmental behavior.

For example, a “best-in-class” BRI product that is seeking to be excellent to the environment could still own an oil company, as long as they are endorsing the oil company that is the most environmentally friendly, and, through their support of that company, encourage the rest of the industry to improve their environmental policies.

2) Engage

While selling (i.e. divesting) “what is bad” is the most common reaction by Christians to owning companies that violate Biblical truth, “engaging” these companies should have a better chance of creating corporate change.

The most famous divestment movement in the U.S. was the divestment of all South African companies in the 1980s during the anti-apartheid movement. This movement resulted in hundreds of investors publicly divesting from South African companies in order to put public pressure on them to change their apartheid ways. Siew et al., (1999) study showed that, while there was a lot of publicity that resulted from this movement, there was no discernible impact on the market valuations of the divested companies.

All that appeared from this movement was that shares were exchanged from “investors of conscience” to investors who were more morally neutral. Therefore, while divestment may be the most natural response to owning morally controversial companies, many BRI investment products have chosen to engage corporate management of these companies before divesting in order to see if they might first change their behavior.

Some examples of successful shareholder engagement (also known as shareholder advocacy):

  • In 1997, a Christian shareholder of General Mills, Kleinbrook, discovered that the company had been directing corporate money to Planned Parenthood. Instead of simply divesting General Mills (ticker: GIS) stock, Kleinbrook organized investors and put enough pressure on management to change their policy.7
  • In 1999, Home Depot announced that they would phase out sales of products made from woods harvested in old growth forests. This happened after about three years of shareholder dialogue. During that time a series of meetings between environmentalists, concerned shareholders, and management took place.8 In 2015, Hilton announced that they are no longer going to offer pornographic films in their hotels in response to pressure from Christian investors.9

Interestingly, the majority of shareholder engagement today is by faith-based investors (see pie-chart).

7 Naber, Mary (2006), “Christ’s returns,” Christianity Today; Sep 3, 2001; 45, 11; ProQuest pg. 78
8 Domini, Amy (2001), Socially Responsible Investing, Dearborn Trade, 2001

3) Exclude (i.e., Divest)

The most common BRI products simply exclude companies from their portfolios that are not consistent with biblical truth, and for the investor who does not have the time or expertise to endorse or engage, this is a valid method of upholding biblical values and maintaining integrity as a Christian.

Investment products centered around divestment are nothing new; in fact, this practice is as old as stock investing itself. As early as 1696, the Quakers advocated against investing in the slave trade through such companies as the Dutch East India Company, which being founded in 1602, was the first company ever to issue shares of stock.10

In the U.S., the Pioneer Fund Group established a fund that refused to invest in companies that were involved in alcohol or tobacco as early as 1928.

Subsequent divestment movements (e.g., anti- Vietnam War, anti-apartheid in South Africa, anti-Sudan, anti-greenhouse gases) have created an ample amount of investment products for investors seeking to invest in the stock market while also avoiding areas of moral controversy.

Typical BRI products will screen out companies which support or profit from the following issues: abortion, pornography, LGBT activism, human rights violations, anti-family entertainment, alcohol, tobacco, gambling.

Some investment products also include additional issues, such as environment, weapons, and corporate pay.

For a quick reference of the prevalence of corporate support for unbiblical issues such as these, see the table above, which lists a sampling of large U.S. companies (from the Dow Jones Industrial Average Index), showing how many of them are engaged in activities that are not consistent with biblical truth.

While this list may seem discouraging, the good news is that the overwhelming majority of publicly traded stocks pass biblical screening criterion.

Violations such as illustrated below are mainly concentrated in the largest companies, while small and mid-sized companies tend to be much less egregious as a group. In addition, even within the large company space there are still plenty of options: out of the 500 stocks in the S&P 500, 247 pass biblical screening criterion.11

10 Bohoslavsky, Juan P. and Jernej Letnar Cernic (2014), Making Sovereign Financing and Human Rights Work, Bloomsbury Publishing, pg. 324

11 Source: Inspire Large Cap Impact Indexpg. 324

Common Questions

While BRI is an attractive proposition for most Christians, there are a couple common questions that give some investors pause:

  1. Does BRI deliver lower returns due to a restricted investment universe?
  2. Are there an adequate number of BRI investment options available to invest prudently with sufficient diversification?

Question #1: Does BRI mean lower returns?

A common objection to BRI investing is that an investment strategy that divests large amounts of companies from the investable universe will limit their ability to earn a reasonable return. The rationale for this fear is that by reducing the possible investment opportunities, it is likely that many good investment opportunities will be missed. However, through numerous research papers over the last 10 years, this objection does not appear to hold up.

Revelli, C. and Viviani, J.-L. (2015), who conducted a meta-analysis of 85 studies and 190 experiments of other studies, concluded that there was no compelling evidence that various “sustainable and responsible” investing methodologies drove return performance in either a positive or negative direction relative to nonrestricted peers. A few specific examples of these studies include: Goldreyer and Diltz 1999; Statman 2000; Bauer et al. 2005; Bello 2005; Benson et al. 2006.

These studies have been done for investment products labeled “socially responsible,” which includes “biblically responsible” investments as a subset, and counter the fear that a portfolio that restricts its investable universe will automatically have lower returns. The empirical data shows that performance is not hindered by “sustainable and
responsible” investing methodologies, including BRI.

Question #2: Are there enough BRI options to build a good portfolio?

While it is easy to convince a Christian that owning a company that violates Biblical conviction threatens their integrity and sense of Biblical stewardship, it is less easy providing the appropriate bridge to a BRI solution. Are there enough BRI solutions for investors to invest prudently? While there are certainly more “non-BRI” solutions than BRI solutions, there are sufficient options in the marketplace for an investor to create a well-diversified BRI portfolio.

New BRI investment options are becoming more prolific as part of the overall trend toward responsible investing. As the graph on the next page illustrates, sustainable and responsible investing in the United States is growing
exponentially, rising 76 percent between 2012 and 2014 to represent a total of $6.57 trillion of investment capital. This trend is expected to continue in the years ahead, which will help build the supply of BRI products and services available to Christian investors.

However, as the supply of BRI products have grown, the risk of buying a BRI product that is not actually Biblically responsible has gone up as well. For that reason, a “Certified BRI” standard has begun to be developed but it is still in the nascent stages. As such there is still a need for investors to do their homework to make sure the funds they are considering for investment actually do live up to the BRI label.

This can be accomplished by using BRI screening technology that will provide investors a “moral audit” report on their investments, detailing the violations present in the investment being screened. At least one firm, Christian Wealth Management, offers this service free of charge to investors at

That said, while there are a significant amount of BRI products available to investors in the open marketplace, there are very few situations where a BRI product is made available to investors housed in their company’s 401(k) or 403(b) retirement accounts. A company’s 401(k) or 403(b) retirement offering tends to have limited investment options. For most employees in a retirement program with their employer, they can only choose from one of a
few possible mutual funds, which are likely not BRI products. There are two possible solutions to this problem for an employee seeking BRI options: divest or engage. The first solution, divesting, would involve an investor liquidating all of their company’s retirement assets and going outside of their company to invest in BRI products. While this is a viable solution, it is not an ideal solution; tax deductibility and company matching for all employee contributions would be lost given this solution.

What about employers, and Christian employers in particular? How can they respond to the requests of their employees for BRI retirement plan options, and more importantly, fulfill their stewardship of God’s resources in their company retirement plan? Thankfully, along with the boom in the BRI trend, new options are opening for employers desiring to implement BRI in their retirement plans, along with others which have been available for some time. For instance, Timothy Plan mutual fund company (, has been providing their funds inside of 401(k)s and 403(b)s since the 1990’s. In fact, the company itself was founded originally to meet the need for biblically responsible retirement plans for pastors. 

A relatively new solution is being provided by Inspire (, which has pioneered low
cost, index based BRI portfolios. Inspire delivers a turn-key, low cost retirement plan solution to employers both large and small, leveraging the latest technology to bring a broad variety of indexes and strategies into the retirement plan market, as well as endowment management and individual investors.

Concluding Thoughts

Employees “engaging” employers is an alternative solution to the lack of BRI investment products. This would mean employees voicing an opinion that there is a need for BRI investment options within their investment choices. The current investment options that are available to employees are the result of previous investors requesting a change.

For example, over the last 20 years, employees, through their active engagement, have expanded the current options available in most retirement accounts from large, actively managed U.S. stock funds, to a wide variety of small and large domestic and international funds that are both actively and passively managed. This engagement has also resulted in the widespread adoption of “socially responsible” funds, such as those focused on helping
the environment. With effective engagement, biblically responsible funds can also find their place in 401(k)s on a massive scale.

By “engaging” their employers, a Christian employee can maintain integrity and uphold biblical stewardship, even with owning controversial companies, with the hope that they will improve the current system. However, once engagement proves to be fruitless, the former, divestment option, is likely the next best solution for a Christian of strong moral conviction.