Faith in action: The case for impact investing by faith-based charities

Co-authored by Tribe’s Head of Charities, Carli Baldasare, and Reuben Coulter, senior adviser and faith-driven investor.

Impact investing for faith-based charities

It’s often said that faith is synonymous with a higher calling. And in today’s world, the need for positive change is increasingly urgent. Amongst the intensifying global challenges, it’s worth asking if the vast financial resources held by faith communities are being aligned effectively to fulfil their higher missions through impact investing for faith-based charities.

The four major faith groups globally manage assets totalling $5 trillion.^[1]  But traditionally, their investment strategies have been limited to the basic avoidance of certain industries that conflict with their core beliefs, such as weapons production, adult entertainment and tobacco.

Only 3%^[2] of these funds are considered socially responsible or impact investments—terms for investments actively seeking positive social and/or environmental returns to help address the call for action.

Why does this discrepancy exist and, crucially, what are the compelling reasons for faith communities to embrace more impactful investment strategies?

Why hasn’t impact investing for faith-based charities traditionally been adopted?

Initially, there weren’t many impact investment products that met the liquidity, proven track record, and income criteria essential for charities. Impact investing wasn’t considered mainstream. Fast forward to today, and this is no longer the case.

The impact investment market has grown significantly, with over $1.1 trillion managed by more than 3,300 organisations globally as of 2022.^[3] This figure more than doubled in just three years.^[4]

The exponential growth in impact investments holds significant opportunities for faith-based charities. This progress signals a maturing market for investments which aligns closely with the values of faith groups. Legal uncertainties among UK trustees previously made it challenging for charities to clearly know if they could integrate the values of their faith into their investment decisions.

However, the 2022 Butler-Sloss ruling,^[5] followed by clarifications from the UK Charity Commission for England and Wales last year,^[6] removed this ambiguity and gave a clear runway for charities to invest for positive impact.

As noted in Tribe’s recent article, trustees are now empowered to consider community impact, donor relations, beneficiaries, reputation and more when making investment decisions. In essence: faith-based charities can and should integrate their values into impact investment strategies.

Three reasons for faith-based charities to engage in impact investing

1. Staying true to faith principles

Central to many religious teachings is the emphasis on responsible and ethical management of money. For instance:

• Islamic finance and Shariah-compliant investments are rooted in centuries-old wisdom and theological principles, ensuring financial activities align with Islamic ethics.
• The Jewish Torah offers guidance on using capital consistent with faith values, and teachings advocate for global care, justice and diversity.
• The Christian faith has a long history of faith-aligned finance from ethical lending in medieval monasteries to the establishment of ethical businesses by Quakers and Methodists during the Industrial Revolution.

These teachings underscore the importance of aligning financial decisions with faith-based values. Impact investing resonates with these foundational principles, offering an approach for faith communities to express their commitment to ethical and responsible financial practices.

2. Unlocking greater mission potential

Faith communities and charities aim to make the world a better place, and their investments should be an extension of their values and objectives. While income, grants and spending are carefully scrutinised for faith alignment, the investment portfolios powering these initiatives might not reflect the same values.

This is crucial as many challenges, such as alleviating poverty through job creation or combatting climate change through sustainable technologies, are principally addressed through strategic business and capital investment.

This capital has transformative potential, capable of influencing industries, cultures and communities at scale. It has the capacity to expedite progress in areas like education, healthcare, renewable energy and poverty alleviation.

As Darren Walker, President of the Ford Foundation, aptly summarised, ‘If the last 50 years of philanthropy were defined by grant-making budgets, the next 50 must be about directing the other 95% of our assets toward justice.’^[7]

3. Mitigating reputational risk

Faith communities are expected to use their resources ethically, an expectation especially held by donors and the members themselves. However, there’s a long list of instances where faith groups faced criticism for their investments in recent years. This public criticism highlights the reputational risks linked to having investment portfolios which conflict with faith values.

But is merely avoiding reputational harm enough? There is a growing trend of faith-based organisations actively showcasing their commitment to their values.

Religious activist groups are advocating for divestment from fossil fuels^[8] and encouraging companies to report on human rights violations in their supply chains.^[9]

Embracing impact investing not only helps to shield against many reputational risks, but also demonstrates a proactive dedication to positive societal and environmental outcomes.

Conclusion: Why faith-based charities should invest for impact

What’s the case for impact investing for faith-based charities? It boils down to the profound alignment of faith and finance and the ability for investments to do more than generate income.

When investments mirror religious values, charities demonstrate their commitment to their beliefs and ensure their financial actions contribute positively to the world, consistent with their foundational principles.

True transformation emerges when both heart and capital join forces and echo the values of compassion, harmony, and progress.

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[1] Faith-aligned impact investments creating ‘game changing’ opportunities in making world more sustainable, University of Oxford, Saïd Business School

[2] Oxford Faith-Aligned Impact Finance Project, Phase 1 Report, Global Impact Investment Network

[3] Oxford Faith-Aligned Impact Finance Project, Phase 1 Report, Global Impact Investment Network

[4] Sizing the Impact Investment Market, Global Impact Investment Network

[5] Update on investment guidance following Butler-Sloss case, Gov.UK

[6] Investing charity money: a guide for trustees, Gov.UK

[7] Investing with impact in the endowment: Why do it and how to get started, Impact Investing Institute

[8] Fourteen arrested in St Paul’s Cathedral after fossil-fuels protest, Church Times

[9] Nuns Highlight Human Rights Concerns Over Tesla’s Supply Chain, Barron’s