“But Statman says for some people that’s like telling an Orthodox Jew he should save money by buying cheaper cuts of pork and donate the extra money to the synagogue.” – Dan Bortolotti referring to Meir Statman in “More on socially responsible index investing.”
This reference to finance professor Meir Statman nicely gets at the dilemma for investors who wish to have their religiously founded ethical convictions reflected in their investment choices. For some, it may even be difficult to make a connection between their faith and their investments because they have neither considered the issue before nor heard it spoken about in their religious community. With this in mind, the following is my attempt at introducing the topic, starting with the three so-called “Abrahamic” faiths: Judaism, Christianity, and Islam.
Allow me to note, first of all, that the rise of Socially Responsible Investing (SRI) or Environmental, Social and Governance (ESG) criteria in investing is a relatively recent phenomenon, and still far from widely embraced, regardless of religion, heritage, or moral conviction.
Investing According to Jewish Values
An article from Investopedia suggests that philanthropy and diversification are key principles dictated in the Talmud. In “Aligning Jewish Values with Philanthropy and Investing,” a representative of the firm Morgan Stanley writes, “The Torah offers guidance on aligning capital with Jewish values through a number of commandments and mitzvot, the Hebrew word for good deeds.” Three examples of the way Jewish investors can express their faith through investing helpfully map onto ESG criteria:
Environmental: Climate Change
Tikkun Olam, or repairing the world, could be interpreted as a call to address climate change by excluding companies that harm the environment or by investing in companies that support the transition to a low carbon economy.
Social: Social Justice
Tzedek is a call for justice. Justice for the poor can be expressed by investing in companies working toward the eradication of poverty, for gender and multicultural equality, or for a fair court system around the world.
Governance: Shareholder Engagement
The mitzvah of Tzedakah (righteousness) emphasizes the intentionality of giving as equally important as the amount. This could mean allocating investment dollars to asset managers who actively engage with the companies into which they invest to improve corporate practices and has a positive impact.
Does this mean that an observant Jewish person will automatically gravitate toward the myriad of ESG funds that are available today? Not necessarily. SRI or ESG funds often avoid investments that seem more attuned to certain Christian scruples, like alcohol, gambling, or tobacco, to name three. These may not align that well with Jewish concerns. For example, for many Jewish communities, the support of the state of Israel is essential, so companies that align with the Boycott, Divestment, and Sanctions (BDS) movement are difficult to support.
At the moment, I am not aware of any mutual funds or ETFs in Canada that specifically follow Jewish investing principles. That may mean investing in individual securities or perhaps US-domiciled ETFs.
Investing According to Christian Values
To my knowledge, the first mutual fund company to provide SRI opportunities to retail investors in Canada was Meritas, which started in cooperation with the Mennonite Savings and Credit Union (now known as Kindred Credit Union) and the Mennonite Foundation of Canada (now known as Abundance Canada). Meritas has since merged with NEI mutual funds. Christians have therefore been at the forefront of SRI, ESG, or Sustainable investing in Canada.
Criteria for investing depend to some extent on the Christian body involved. A statement from the U.S. Catholic Bishops dating back to 1996 provided 10 principles for economic life. Point 10 states, “The global economy has moral dimensions and human consequences. Decisions on investment, trade, aid, and development should protect human life and promote human rights, especially for those most in need wherever they might live on this globe.”
St. Jerome’s University, a Roman Catholic school affiliated with the University of Waterloo, explicitly adheres to Responsible Investing or ESG criteria and outlines within its Investment Policy and Procedures a series of “Mission-Based Investment Restrictions.” Among the concerns cited are:
Impacts on Stakeholders
Under this concern, they avoid investing in companies that fail to respect human rights, engage in anti-competitive practices, practise poor labour standards, or damage ecosystems.
Business Ethics and Governance
Beyond clearly illegal matters like tax evasion and money laundering, this concern includes executive compensation and unethical attempts to influence public policy.
Product Involvement Screens
As a Catholic school, they will not invest in hospitals that provide abortions, in companies that manufacture abortifacients (drugs that terminate a pregnancy), or in companies engaged in research that use embryonic stem cells or fetal tissue research.
This is only a partial list of their criteria, but it gives the reader a sense of the investment criteria that a Catholic investor might wish to apply.
Just as Catholics range the ideological spectrum, so do Protestants. Using the United Church of Canada to represent the broadest mainstream of Protestantism in Canada, their investment policy states that they shall not invest in the securities of companies primarily engaged in:
- The development, manufacture or sale of weapons or weapon delivery systems;
- The preparation, distribution, and sale of salacious or pornographic materials;
- The manufacture and sale of tobacco products; or
- Gambling activities; and
- The Fund shall not invest in fossil fuel companies listed on the Carbon [Underground] 200.
At the more qualitative level, the United Church also analyses investments for ESG criteria, and mentions specifically “corporate governance, community development and relations, human rights practices, respect for indigenous rights (including free, prior and informed consent), employee practices, environmental practices, product safety and impact, and customer relations.”
At the more conservative or evangelical end of the spectrum of Protestants, there is a more specifically Christian form of investment analysis known as Biblically Responsible Investing.
Just as Socially Responsible Investing uses negative screens to eliminate certain investments from consideration, so does Biblically Responsible Investing (BRI). To a considerable extent the screens will overlap, but there are some distinctive emphases. According to the US firm Envoy Financial, examples are:
- Anti-Christian lifestyles such as abortion and pornography
- Addictive behaviors such as alcohol, tobacco, and gambling
- Human rights issues such as religious persecution, terrorism, and political oppression
- Abusive practices toward God’s physical or human creations
Additionally, BRI invests in companies that positively impact their communities, the environment, and society. According to Brian Hilt of Virtuous Investing, an investment management firm based in Ontario, the BRI process can be summed up in three steps:
- Avoid the bad: avoid companies that contradict biblical values;
- Invest in the good: invest in ethically managed companies that respect the family, the sanctity of life, and care for the poor;
- Be an active owner: Active engagement in voting and in seeking a voice in the boardroom.
Investing According to Muslim Values
Muslims who wish to have their investments align with their beliefs seek to invest in companies that provide products and services that are “halal,” or permissible. Colloquially, those of us who stand outside of Islam and Judaism may think of halal as being equivalent to kosher. While there are some overlapping categories, a prohibition against eating pork or shellfish, for example, one cannot assume that one is the same as the other.
As halal applies to investing, prohibited investments include producers of pork, alcohol, tobacco, weapons, adult entertainment, and financial instruments that generate interest.
On a personal note, in my discount brokerage days, I remember speaking with a new investor client who wanted to make sure that the cash she had sitting in her investment accounts did not generate interest. Fortunately, at least some investment firms are aware of this restriction and will, upon request, suppress the interest that would ordinarily be paid on cash deposits.
You may be familiar with the term usury. Broadly speaking it refers to lending money and charging the borrower interest. These days usury is generally limited to excessive or illegal levels of interest – a snide comment about payday loan companies may be appropriate here – but devout Muslims object to any interest. One way this has tended to work out in practice is that Muslims would save cash to purchase real estate, a daunting practice in today’s sky-high real estate marketplace.
Fortunately, index creators and investment firms are coming up with solutions that permit Muslims to invest in the stock market in keeping with their religious laws, known as Shariah. Did you know that there is an S&P/TSX 60 Shariah index? Among its constituents are Shopify, CN Rail, CP Rail, Barrick Gold, and Magna.
A global equity mutual fund available to Canadians who want a Shariah-compliant investment is known as the Global Iman Fund. The investment objective of this fund “is to provide investors with medium to long-term growth by investing in a diversified portfolio of global investments that are in accordance with Islamic principles.”
Wealthsimple is a robo-advisor that offers a Halal Investing portfolio, optimized for investments that comply with Islamic law. Three components make up this portfolio: WSHR, the Wealthsimple Shariah World Equity Index ETF, gold, and non-interest-bearing cash. A typical 60/40 equity/fixed-income portfolio as provided in this portfolio works out to 60% WSHR, 20% gold, 20% non-interest-bearing cash. WSHR was launched in April 2021 so there is very little history to review. However, the prospectus states that its benchmark index is the Dow Jones Islamic Market Developed Markets Quality and Low Volatility Index.
For this post, I will also mention Manzil Halal Portfolios that invest in a mix of an equity fund and an income fund. Unlike the average income fund which generates interest income, this compliant fund invests in real estate “to provide Muslims across Canada with Halal home financing.”
Not all adherents to particular faith communities make their investments according to religiously formed ethical guidelines. On the other hand, there are many with no specific faith commitments who are very rigorous in their choice of investments precisely because of their ethical convictions. Sustainable, Socially Responsible, or Environmental, Social and Governance (ESG) aware investment choices are becoming increasingly well-known and popular. As someone with a theological education and active involvement in the Mennonite expression of Christianity, it is heartening to know that there are increasing options for people of particular convictions who want to express their faith through their investments.
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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.