What do these guidelines mean for Catholic investing going forward?
Against this broad backdrop of positive strategies, the USCCB provides more direction with guidelines in six vital areas. Here are guideline highlights.
Protecting human life. There's an absolute exclusion of companies that directly participate in or support abortion.
Promoting human dignity. Catholic investors shouldn’t own companies with policies that discriminate against people of varied ethnic and racial backgrounds. As with racial discrimination, the USCCB bans investing in companies with policies that discriminate against women.
Reducing arms production. Investors shouldn’t invest in firms primarily engaged in the sale of military weapons or the production of weapons in a manner that’s inconsistent with Catholic teachings on war. This includes firms that sell or produce biological and chemical weapons, first-strike nuclear weapons, and other weapons of mass destruction.
Pursuing economic justice. Investors should support shareholder resolutions directed toward avoiding the use of sweatshops to manufacture goods, promoting generous wage and benefit policies, and practicing adequate worker safety guidelines.
Protecting the environment. Investors should support shareholder resolutions that encourage corporations to preserve the planet's ecological heritage, address the rampant poverty among the world’s poorest nations, redirect the quality of development, and create environmentally sensitive technologies.
Encouraging corporate responsibility. Catholic investors should support shareholder resolutions that encourage companies to develop social responsibility guidelines and report on social, environmental, and financial performance.
One could expect fossil fuel–related issues such as climate change and pollution to be found in most, if not all six, of the guideline areas. However, environmental concerns are directly called out in only two: protecting the environment and encouraging corporate responsibility. These two areas aren’t addressed by the do no harm principle because there was previously no requirement to avoid fossil fuel–related stocks. In contrast to the new Vatican directive to divest, the USCCB has historically advised active corporate participation or positive strategies for these categories. With the new encyclical encouraging divestment, Catholic investors will have to evaluate how to address fossil-free investing in their equity holdings using the do no harm strategy.
What are the implications of portfolio divestment?
Fossil-free investing refers to a strategy that eliminates investments in companies that own or produce fossil fuels—namely, coal, oil, and natural gas. Given the size and number of energy-related companies, investors are likely to be concerned over the potential impact of this decision on a portfolio’s risk and return. While we await the USCCB’s response to the new directive, Parametric research provides insight on stock portfolio implications from previous years. Jennifer Sireklove’s whitepaper on fossil-free investing draws encouraging conclusions regarding performance dilution.
The bottom line
One doesn’t need to be a theologian or have an affiliation with the church to serve the sizable Catholic investing community. Being knowledgeable about the tenets set forth in the guidelines and the potential performance trade-offs is a great first step in successfully working with these investors. There’s no one-size-fits-all approach, and individual and institutional investors may need help working through what can be a highly personal process in determining the right approach.
Through improved company disclosure, comprehensive analytics, evolving shareholder engagement, and advanced portfolio management techniques, thoughtful financial counselors can serve Catholic investors with confidence.