The Tall Tale of the Trade-Off

Introduction and Conclusion

The purpose of this whitepaper is to highlight the development of values-based investing at a summary level and, more importantly, provide research that indicates there is no sacrifice of investment returns in adopting a faith-based approach to values investing.

Everyone has values that impact their thinking and their lives. It has become increasingly common to align one’s investments with those values. According to McKinsey and the Global Sustainable Investment Alliance, ESG assets are on track to reach $53 trillion, based on this analysis, up from $37.8 trillion by year-end. Exclusionary screening based on religious values and other criteria makes up the biggest chunk of ESG investing, at about $20 trillion globally in 2018.1

What is Values-Based Investing?

Values-based investing is a practice providing investors the ability to invest in companies that align with their personal beliefs and values. Values-based investors look at a company’s financial factors, such as financial returns, balance sheet, growth rate, and valuation, but also at non-financial factors, such as business ethics, data privacy, and the well-being of employees when selecting their investments. They want to support the companies that are “doing good,” those that are making a positive impact in the areas that mean the most to that individual investor. With values-based investing, one’s investments not only reflect their financial goals, but also align their values, beliefs, and the causes one supports.

How to Implement Values-Based Investing

1. Exclusionary Screening

a. Avoids securities based on certain sectors, products, actions or risk-based criteria
b. Reflects values

2. Inclusionary Screening

a. Positive or improving values-based factors vs. peers
b. Focuses on sectors or themes

3. Integration

a. Systematic, explicit inclusion of values-based factors in the investment process
b. Aims for higher returns or to mitigate risks

4. Impact

a. Measurable, positive outcome
b. Project specific
c. Non-financial outcome & returns are equally important

5. Active Ownership

a. Corporate engagement
b. Shareholder advocacy
c. Proxy voting
d. Shareholder resolutions