This essay is a Cover Story selection, a weekly feature highlighting the top picks from the editors of America Media.
In the Sermon on the Mount, Jesus says that in giving to the needy, your left hand should not know what your right hand is doing (Mt 6:3). This striking image is part of his injunction not to draw attention to your good works but to go about your giving quietly and humbly.
In 2007, The Los Angeles Times published a story suggesting that the left hand of the Bill and Melinda Gates Foundation didn’t know what the right hand was doing—but in a different sense from what Jesus intended. On the one hand, the foundation was heavily investing in global health initiatives like vaccination against polio and measles and the fight against malaria. On the other hand, it had invested hundreds of millions of its multibillion dollar endowment in companies that are major polluters and whose business practices exacerbated the very health problems that the foundation was working to combat.
The issue stemmed from a “firewall” that the foundation had erected between its grant-making side and its investment side. The left hand gave from the endowment, but the right hand effectively took many of the benefits back in its work to secure the endowment’s growth. The authors of the Times article quoted an industry expert describing this dynamic as “the dirty secret” of many large philanthropies. “Foundations donate to groups trying to heal the future,” he went on, “but…they steal from the future” in how they invest.
Of course, it is not only philanthropies that have to worry about aligning their money and their values. (The investment advisor and activist Morgan Simon reports, in her book Real Impact: The New Economics of Social Change, that the Gates Foundation has since significantly changed its ways.) Colleges and universities, for example, proclaim a social mission and profess all sorts of commitments to civic values. Do they invest their endowments accordingly? What about unions with pension funds? Or, for that matter, morally scrupulous individuals putting money away in retirement accounts managed by behemoth firms like Vanguard, Fidelity and T.I.A.A.?
Jesus also says in the Sermon on the Mount that where your treasure is, there your heart is, too (Mt 6:21). That may be a hard saying to hear. It is even harder to heed his injunction not to worry about tomorrow (6:34), which might seem fine and well if you think that the world is soon coming to an end, but which is surely much less persuasive if you have, even indirectly, responsibility for an institution that by its nature has to be “in” the world, even if it strives not to be entirely “of” it.
Enter socially responsible investment (SRI).
It’s hardly a new phenomenon, but it has attracted wide attention only in recent decades. Histories of SRI sometimes trace its roots to the international “free produce,” anti-slavery sugar boycotts in the late 18th and 19th centuries, demonstrating the power of economic action. A more direct precedent is the establishment of the Pioneer Fund in the United States in 1928 (not to be confused with a later nonprofit that advocated eugenics). Marketed to evangelical Protestants, it avoided investment in the alcohol and tobacco industries and yielded robust returns.
Both the Vietnam War in the 1960s and ’70s and the divestment movement against the South African apartheid regime in the 1980s accelerated the growth of SRI as institutional and individual investors sought to ensure that they were putting their money where their mouths were, so to speak; or, more precisely, that they weren’t putting their money into industries, products or causes to which they or key stakeholders of theirs strongly objected. Some of the protests in 2024 on college and university campuses about Israel’s war in Gaza have similarly objected to those institutions’ investments in the defense industry and to investments linked in any way to Israel as a whole.
Investment and Gospel values
There are several methods of SRI. The predominant method is so-called negative screening: constructing portfolios not invested in firms or industries to which the investor would object on ethical or religious grounds. Other methods include corporate activism or engagement, which might take the form of introducing shareholder resolutions or casting proxy votes on company policies; and community or impact investing, which allocates capital in support of social or environmental goals like affordable housing or sustainable agriculture.
Impact investors likewise seek a return (impact investment is distinct from philanthropic giving), but it may or may not be “market rate”—that is, the return that would be expected from investing without ethical qualms, against a standard benchmark of general investing. It should be noted, too, that SRI is itself distinct from ESG investing, which takes into account a firm’s environmental and social record (with respect to climate change, or supply chain oversight), as well as its governance practices (for example, the composition of the board of directors and its role in oversight of executives). A common criticism of publicly traded ESG funds is that they are opaque—it is hard to know all that much about the investments included in the funds—and as such are vulnerable to “greenwashing”—that is, a company making itself seem much more environmentally friendly than it is in practice.
In the world of Catholic institutional investors, such as universities, health care systems, foundations and religious congregations, the SRI method of choice is “negative screening” (a Global X research paper from 2022 calls investment restrictions the “bedrock of Catholic investing”), and there are a number of investment firms and mutual funds serving this market. There is even a S&P 500 Catholic Values Index, with a corresponding exchange-traded-fund (E.T.F.) under the ticker CATH.
Yet the time may be ripe for Catholic investors to examine themselves, as the Gates Foundation had to in the aftermath of the Los Angeles Times exposé. While admirable in some ways, negative screening is no guarantee of moral purity. The “no” of negative screening is more equivocal and permissive than it might seem. Moreover, framing investment decisions in terms of what should not be done, instead of what should be done, unduly limits the scope of possibilities. Finally, negative screening risks promoting a false sense of security that, so long as specific products or industries are avoided, everything else is fair game.
Those criticisms are only a start. This is not to say that negative screening is useless or that it shouldn’t be done at all. But it is to suggest that more attention should be given both to what negative screening is good for and to the other methods of SRI. As it happens, the Vatican’s recent reflection on “faith-consistent investment” (the document “Mensuram Bonam,” published by the Pontifical Academy of Social Sciences in 2022) calls for investors first to be active owners of assets and to work “to influence…the enterprises in which they invest”; second, for investors to adopt “a proactive stance regarding the contributions or potential of funds or enterprises to…environmental, social, [and] human goods”; and only third for investors “to avoid ethical contradictions between an investment and the teachings of the Church” (No. 42).
Accordingly, some Catholic investors, acting through organizations like Investor Advocates for Social Justice and the Seventh Generation Interfaith Coalition for Responsible Investment, have committed themselves to corporate engagement. Others, such as 16 U.S. congregations of Dominican sisters, have made significant allocations toward impact investing. Still others, like the Raskob Foundation, have taken the “Catholic Impact Investing Pledge” and are en camino, but many more should follow suit.
Pope John Paul II observed in his 1991 encyclical “Centesimus Annus” that “the decision to invest in one place rather than another…is always a moral and cultural choice” (No. 36). The challenge for investors who profess Gospel values is to invest in ways and places that not only shun an economy that kills, to speak in Pope Francis’ prophetic language, but also help cultivate an economy that does right by the poor, marginalized and vulnerable and responds appropriately to the increasingly urgent cry of the earth.
The problem(s) with negative screening
The business ethics literature presents a handful of criticisms of negative screening as a method of SRI. First, it is open to dispute whether some products or industries that are frequent targets of exclusion really ought to be. For example, as the business professor Mark S. Schwartz asks, “Is the production of nuclear power necessarily unethical [and thus properly excluded], especially when compared to the alternatives?” Most Catholic screening guidelines do not exclude investment in nuclear energy, but the Vatican’s own investment policy discourages it. For a more controversial example, as a rule Catholic guidelines do exclude manufacturers of contraceptives, though a large majority of Catholics do not see eye to eye with the Vatican or the bishops on this matter.
Second, excluding whole industries or categories of products, such as alcohol, can have the effect of eliminating the wheat together with the weeds (Mt 13:24-30). Yes, it withholds funding from companies that engage in unethical business practices, but, as one journal article notes, it also misses “investment opportunities to support companies” that do business right and could even change industry norms for the better.
The third criticism cuts deeper. No company is self-sufficient—sourcing, supplying, financing, insuring, manufacturing, distributing, marketing and so forth, all its goods and services, all on its own. As the U.S. Conference of Catholic Bishops remarked in its 2021 investment guidelines, today’s economy consists of an “entangled web of corporate relationships.” The upshot, as the Dominican theologian and economist Albino Barrera observed in his study of market complicity, is that it can be a challenge to judge whether a given company is “‘significantly’ or ‘primarily’ engaged in…excluded products or services.” Some companies may infringe a negative screen indirectly, as Mr. Schwartz notes, “by acting as a supplier, a customer, a joint venture partner, a creditor, or a shareholder” of other, excluded companies.
One problem here is that such information might not be readily available to investors (a reason to demand greater transparency). Another is that excluding all “significantly” engaged cooperating firms, should they be identifiable, might begin to make it difficult to construct traditional, risk-diversified portfolios.
An example: Say that you want to screen against firearms, as Catholic investing guidelines normally do. It makes sense to target manufacturers, but why not also big retailers like Walmart and Dick’s, or the industry’s principal banking partners, like Wells Fargo? Or say that you want to screen against pornography, as Catholic guidelines also do. Why not its major distributors as well, like Comcast?
A way around this problem is to exclude companies based on the percentage of their revenues derived from the product or service to which investors object. For example, the U.S.C.C.B. guidelines state that it “will not invest in companies that…derive more than 10 percent of their revenue from the sale of contraceptives, even if they do not manufacture them.” But this strategy is itself open to two objections. First, why 10 percent? Why not 5, or 15, or 20 or 25? The percentage seems arbitrary.
Second, if a product or service is morally objectionable to the extent that investors should shun its manufacturers, why is it acceptable to invest in a company that derives any of its revenues from it? Why give such companies a 5, 10 or 15 percent pass on bad behavior? That decision seems likewise arbitrary, and it prompts the disquieting question of whether negative screening is really making that much difference for the better in the world.
Finally, the charge of arbitrariness can be leveled at the whole enterprise of negative screening. The U.S.C.C.B. guidelines can again serve as an example. They are thoughtful and thorough (and, like “Mensuram Bonam,” propose more than negative screening), but it is obscure at times why they recommend one investment strategy rather than another (and appeals to the need for “prudence” do not dispel that obscurity). [Editor’s note: America’s investments follow U.S.C.C.B. guidelines.]
The guidelines state emphatically that the U.S.C.C.B. “will not invest” in companies having to do in various ways with abortion, euthanasia, assisted suicide, in vitro fertilization, research on human embryos and fetuses, cloning, pornography, gender reassignment, contraceptives, weapons of mass destruction, firearms (other than for hunting, law enforcement and the military), gambling, tobacco and recreational cannabis. Why not also capital punishment, animal experimentation for cosmetics and the like, wasteful fast fashion, and unfair business practices such as predatory pricing, price fixing and price discrimination? The list could go on.
But more to the point, why will the U.S.C.C.B. only “consider” divesting from companies that persistently violate workers’ human rights, and why will it only “consider” divesting from companies that consistently fail to take steps to reduce global greenhouse gas emissions? (Here’s looking at you, Big Oil—from which the Church of England Pensions Board recently divested after five years of largely futile efforts at corporate engagement.)
Remarkably, the U.S.C.C.B. guidelines recommend only “corporate dialogues, proxy voting, and support of shareholder resolutions” for companies mixed up with forced labor and child labor. Why not cut out companies that cannot or will not cut through the opacity of global supply chains to be sure they are not selling products made by young children and modern slaves? Granted, that is much easier said than done, but it’s surely just as important as—if not much more important than—saying no to legalized weed.
Investing for positive results
It is not hard to imagine the response: Those academic criticisms of negative screening are all fine and well, but let us hear from the finance professionals, engaged in the trenches of investment. What do they have to say about all this? Further, what are realistic, practical alternatives for, say, the investment committee of a board of trustees with fiduciary responsibilities for a Catholic university or health care system? Do such alternatives exist? It is wonderful for Dominican sisters to invest in a climate solutions fund or for foundations to align their investments with their philanthropy, but what if you need to try to ensure a high rate of returns to maintain the very existence of an institution whose purpose is not to give away its money?
Here is what some finance professionals had to say in interviews with America. Tim Macready, head of global multi-asset investing at Brightlight, an investment advisory firm, suggests that the goal of negative screening should not be understood as seeking moral purity. That is a goal it cannot achieve. “For those seeking moral purity in their portfolios,” he said, “the complex nature of our modern economy makes this, in my view, impossible.” According to Mr. Macready, what negative screening can do is express values, but that makes it a starting point, not an end in itself.
In biblical terms, saying no to putting your treasure in some places is not yet expressing yourself in full. For Mr. Macready, reversing the customary reading of Matthew 6:21, treasure ought to follow the heart. In this reading, investment is about character development as well as more measurable outcomes, and the key question for investors to consider is what they care about and want to support. “Thankfully,” he said further, “within some circles much of the argument has now moved away from purity portfolios and toward conscience portfolios. But that still frustrates me. It’s better theologically, but still not comprehensive. And it neglects so much positive opportunity.”
Mr. Macready also makes a case for more nuanced, less blunt approaches to negative screening that do not exclude entire industries and that do not treat all “cooperating” firms as equally guilty or, for that matter, equally innocent. “We hear the argument a lot,” he said, “that because there’s no universal standard [for what should or should not be excluded], then I shouldn’t try to improve my portfolio. But the Christian life is one of constantly seeking growth and repentance. Screening would be no different.”
Another frequent argument is that “it’s too hard, so I don’t have to think about how my values are expressed in my portfolio.” Here his rejoinder is to “do the hard work.” From his perspective, “If we thought about the character of the companies in our portfolios, we would embrace far more shades of gray.” It is true that a measure of arbitrariness would remain concerning some investment decisions (for example, decisions based on the percentage of a company’s revenues from this or that product), but those decisions would be driven by positive reasons, not a quixotic quest for purity.
Duane Roberts, director of equities for Dana Investment Advisors, likewise sees negative screening as only a first step: Its flip side is so-called positive screening, which is concerned with marks in an investment’s favor. An entry-level form of positive screening is to identify “best in class” investments: for example, “a fossil fuel company that captures methane emissions might be considered ‘best in class’ for reducing its climate impact,” said Mr. Roberts. But, as he noted, “That’s a compromise that still supports harmful activities,” which leads some investors to want investments that align more directly with their values (or, in Mr. Macready’s terms, “conscience portfolios”).
Mr. Roberts’s example here is a Catholic investor who, as a first step, avoids “investments in drug companies that use embryonic stem cells derived from elective abortions in research or production.” To express his or her pro-life values more fully, Mr. Roberts commented, “That investor might seek out companies that are proactively pursuing alternative methods of drug discovery and manufacturing.” This progression brings the investor to the threshold of impact investing, which in Mr. Roberts’ definition “goes beyond values-aligned management to seek out businesses whose purpose addresses a social need.”
Dennis Hammond, senior vice president of responsible investing at First Trust Portfolios, also advocated for “[e]xtending negative screening to corporate engagement, positive screening and impact investing.” According to him, “From a Catholic investor’s perspective, negative screening is good as far as it goes. It’s certainly better than simply ignoring problematic corporate practices and products. But it’s not the whole solution to the moral issues facing investors on Wall Street today.”
Ascension Investment Management (AIM), a registered investment advisor and a wholly owned subsidiary of Ascension, one of the nation’s leading nonprofit Catholic health systems, has managed an impact investment program since 2014, when it was an innovator in the space. (Ascension, AIM’s principal client, is another signatory of the “Catholic Impact Investing Pledge.”) Initially, AIM allocated around $50 million of its then nearly $30 billion in assets under management to impact investments for six participating institutional investors. At the end of 2023, those numbers had grown to 21 participating institutional investors, with $287 million aggregated for impact investments, against around $41 billion in assets under management.
AIM’s program has two impact objectives: first, improving access for the poor and vulnerable to goods and services such as clean water, adequate and affordable housing, education, health care and financial services; and second, caring for the earth, through both environmental conservation and the development of innovative “green” products and processes, such as clean technologies.
David Erickson, AIM’s chief investment officer, explained that the percentage of assets in impact investing is relatively small for two main reasons. First, there are a limited number of opportunities that fit AIM’s investment criteria: investments that are expected to be able to make an impact for the better and to generate a market-based return. Second, he noted that AIM limited its capital capacity in order to stay nimble, making it easier to participate in smaller funds and co-investment opportunities that larger allocators might overlook or deem insignificant.
Amplifying these points, Jessica Cook, AIM’s managing director of business development, remarked that “impact measurement is an ongoing project for our team and for the market generally. It can be difficult to aggregate the data in a way that demonstrates that the outcome a fund is seeking to achieve has been realized.” But the market is still young and growing. Accordingly, AIM’s Impact Investment Advisory Committee, comprised of institutional investors that participate in AIM’s impact program, meets quarterly to provide feedback about impact objectives, investment qualifications and measurement reporting.
Human flourishing
Change, then, is afoot. Even institutions in the highly change-averse industry of higher education have committed through the Intentional Endowments Network to “advance an equitable, low carbon, and regenerative economy.” In the Catholic world, signatories include Loyola University Chicago, the University of Dayton, the University of St. Thomas and Villanova University. And there are a number of portfolio managers developing “Gospel-centric” funds that, in the spirit of Jesus’ parable of the sheep and goats in Matthew 25, seek to bring food to the hungry and drink to the thirsty while also generating healthy returns to investors, which of course attracts greater investment. Creation Investments Capital Management, which is focused on emerging markets in the developing world, is one noteworthy example, with currently more than $2 billion in assets under management, up from $100 million in 2013.
But a reality check is in order: Elon Musk’s fortune is around $200 billion; Jeff Bezos’s is about the same. Mark Zuckerberg is worth around $155 billion, Bill Gates $130 billion. The Wall Street Journal recently lectured the students demanding that their colleges and universities divest from the defense industry that divestment wouldn’t make any difference: Among other reasons, “there’s just too much capital around,” such that, even if Columbia University were to move its full $14 billion endowment, it would be but “a drop in the ocean of capital swilling around big companies.”
Microsoft, The Wall Street Journal’s article notes, is valued at $3 trillion. Like it or not, “The impact of even a lot of universities selling [stock in such a company] would be negligible.” The students’ particular politics aside, the lesson is that the whole SRI movement is swimming against the tide, as academic research also suggests. Mammon rules.
But isn’t that just defeatism talking? It is a view that gives greed the last word, and that seems to put more faith in the power of human works—here, the power of the darkness overcoming the light—than in the efficacy of grace patiently inviting into being a new creation. Negative screening won’t save the world, and there is only so much that could be done with even the University of Notre Dame’s $20 billion endowment, duly reallocated. Investment can contribute, though, to the biblical mandate to be fruitful and multiply (Gn 1:28); it just needs to be cast in terms of giving and not only getting.
According to Brightlight’s Tim Macready, investment, framed in biblical terms, is “taking capital that would otherwise be unproductive and using it productively to support the creation of goods and provision of services that enable human flourishing.” Catholic investors need to look beyond negative screening to see this possibility.
