A growing number of Catholic institutions are putting their money where Pope Francis's mouth is.
Francis last year explicitly endorsed impact investments that respond to social and environmental challenges. In encyclicals, speeches and meetings with heads of state, Pope Francis has broadly emphasized society's collective responsibility to tackle inequality, make markets work for the poor, and address human-induced climate change.
“It is urgent that governments throughout the world commit themselves to developing an international framework capable of promoting a market of high-impact investments, and thus to combating an economy which excludes and discards,” he said at the June, 2014 Vatican conference on “Impact Investing for the Poor.”
“Impact investors are those who are conscious of the existence of serious unjust situations, instances of profound social inequality and unacceptable conditions of poverty affecting communities and entire peoples,” the Pope said. “Investments of this sort are meant to have positive social repercussions on local communities, such as the creation of jobs, access to energy, training and increased agricultural productivity.”
“It is important that ethics once again play its due part in the world of finance and that markets serve the interests of peoples and the common good of humanity.”
The pope's call to action has resonated with Catholic congregations, many of which have been practicing faith-aligned investing for years through low-interest loans, social-responsibility screens, divestment commitments, and shareholder advocacy. Catholic women religious orders, for example, played a critical role in seeding many of the Community Development Finance Institutions in the U.S.
“The CDFI industry might not be around today were it not for Orders of Women Religious, who in the 1970s and 1980s loaned their modest retirement savings at very low rates to CDFIs with little or no capital to protect their investors,” writes Mark Pinsky at the Brookings Institute. “They were among the first lenders to CDFIs at a time when CDFIs were just beginning to develop basic financing skills. This little known act of faith is one of the most inspiring stories in the history of community development finance.”
A new wave of institutions is going further and adding to the Catholic assets seeking investment opportunities in solutions to global social and environmental challenges.
“We’re now moving from avoiding harm, to proactive investments that address the challenges facing the world,” says John O’Shaughnessy, the CEO and CFO of Franciscan Sisters of Mary (FSM) in St. Louis, which runs a nonprofit health system throughout the Midwest. From its $100 million in assets, FSM has carved out an allocation of $10 million for impact investments focused on countering climate change.
The congregation has so far committed $6.5 million to private climate change-curbing investments such as $500,000 in the Lyme Forest Fund, a private real estate fund that acquires and sustainably manages forestland; $1 million in Clean Fund Holdings, a private debt fund that helps finance energy efficient updates to commercial properties; and $250,000 in M-KOPA, a consumer lending company that pioneered pay-as-you-go solar in East Africa that now reaches over 200,000 households with affordable solar systems.
FSM’s journey towards impact investing and its investments are featured in a new report on how Catholic institutions are allocating their investments to counter climate change. With at least 80 percent of the congregation’s expenses covered by its investment income, FSM must safeguard its assets to cover the expenses of an aging institution that can no longer rely on the income of its working nuns.
“We must be smart and responsible with our investments,” acknowledges O’Shaughnessy. “Impact investing allows us to drive our mission forward while pursuing a market rate return.”
The report, from Arabella Advisors, also details the University of Dayton’s recent decision to divest its $690 million endowment from fossil fuels, making it one of the first Catholic universities to do so. Since it began divesting in in September 2014, Dayton's new portfolio has outperformed its old one. The University is exploring additional investments in renewable and clean energy.
“It boils down to: do you want to have integrity around your mission or do you want to make money at any cost to society?” Dayton board member George Hanley says in the report. “And you can divest and still have a return that tracks the overall market.”
Call to Action
Cardinal Peter Turkson, president of the Pontifical Council for Justice and Peace, the Vatican body charged with actively promoting justice and peace in the world, issued a call last September for church bodies to accelerate their impact investments.
“The Catholic Church can draw on a long history of innovative and effective investing for the benefit of society. As early as the 15th century, the Church was sponsoring hostels, hospitals, orphanages and schools,” Turkson wrote in his Declaration on Impact Investment last September. “More recently, Church bodies have been investing in a wide range of organizations providing healthcare, education, agricultural development, microfinance, insurance, environmental restoration and many other social benefits.”
“These efforts could be even more effective if appropriate practices of impact investing were adopted to scale-up investments, attract additional capital, and identify new opportunities for socially impactful investments.”
Oblate International Pastoral Trust, which manages over $400 million in assets from over 200 Roman Catholic organizations in more than 55 countries, is answering the call. Oblate recently backed FIRST, the largest impact investing investment fund in Brazil, with a $7 million investment, joining JP Morgan, OPIC, and the Omidyar Network. FIRST is on target to raise $125 million by the end of the year to invest in companies that provide essential goods and services such as health care and education to Brazil’s emerging middle class.
Oblate is expanding its impact investments as it looks to strategies beyond negative screening to find investment opportunities that align with its clients’ values. The trust Oblate increased its investments into impact investing funds from $15.5 million to $35.5 million from 2013 to 2014.
“It suits and fits better with our desire to be constructive and look for positive impact investments rather than excluding things,” Rev. Seamus Finn, the trust’s chief of faith-consistent investment, told the New York Times.
As in other institutions those interested in scaling impact investing within the Catholic Church will face challenges including institutional inertia, reputation issues, and knowledge diffusion, according to a Briefing Note to last year’s impact investing symposium at the Vatican.
The Vatican itself, which manages an estimated $8 billion, is reportedly considering a carbon divestment policy. About 95 percent of the Vatican’s assets are held in government bonds, the balance in investments funds, which may mean there isn’t much there to divest, says a Vatican Bank official. Nonetheless, the Pope's climate encyclical “amplifies the moral argument that is a tremendous tool for the divestment movement, no matter what happens at the Vatican,” climate activist Naomi Klein told the Guardian in July.
That moral argument also provides the Pope with a way to connect with wavering or lapsed Catholics. When Pope Francis touches down in the U.S. today, he’ll be arriving to a country where half of adults raised Catholic have parted ways with the Church at some point in their lives, according to a new Pew poll.
The Pope’s call for more ethical markets that serve the poor and his recognition of manmade climate change may bring some people back. At the Franciscan Sisters of Mary, the pressure for impact investing came from the bottom, not the top.
“The pressure on the leadership of Catholic congregations comes from the members. The members hear about climate, they hear about the environment, and they say, ‘What are we doing about this?'” says O'Shaughnessy at the Franciscan Sisters of Mary.
“If the membership is stirred, it’s more likely that something will come from this. And the Pope will stir up the membership.”
The original post has been updated to recognize the role of the Orders of Women Religious in seeding many early CDFIs. Thanks to the Reinvestment Fund President, Don Hinkle-Brown, for bringing this to our attention.