Parish leaders seeking to identify guiding principles for sustainable and responsible investing have a variety of online and print resources to draw upon.
General SRI Questions
What is SRI?
The Forum for Sustainable and Responsible Investment, a nonprofit organization that promotes sustainable, responsible, and impact investing, provides this definition:
Sustainable, responsible and impact investing (SRI) is an investment discipline that considers environmental, social and corporate governance (ESG) criteria to generate long-term competitive financial returns and positive societal impact.
A helpful site for basic information on SRI is USSIF’s SRI Basics page.
How can one learn what investments are contained in a particular mutual fund that claimes to adhere to SRI principles? Where might oe find data on management fees and on performance results, with benchmarks for comparision?
The USSIF website provides a chart of funds that embrace SRI principles with data on returns over time, management fees, and benchmarks used. For each fund listed, the site provides screening information on the fund’s approach to SRI. As of November 2016, the chart contained information on 208 mutual funds.
What is meant by "environmental" or "green" investing?
In recent years, many businesses have been affected by environmental considerations mandated by state and federal laws and regulations, as well as by standards established by international bodies. For example, the requirement that companies measure their pollution and make this information available to the public has led many, if not most, businesses to adopt processes and technologies that reduce or prevent environmental degradation (expenses that may detract from the business’s long term profitability, value, and earnings). In addition, many businesses have been created or have re-focused their enterprises on products and services that support and sustain the environmental movement.
“Green” investing focuses on the ways in which a business’s activities affect the environment. Typically, financial advisors screen investment opportunities for negative environmental impacts: practices that result in damage to human health and the larger environment. These practices, if not corrected, are reported on a number of SRI screens as having “negative environmental” ratings.
As of January 2016, the U.S. environmental industry collectively represented about 3% of the nation’s GDP, having grown 3% from 2014 levels. The industry is composed of three different sectors:
Environmental Services (hazardous waste management, remediation, testing, consulting, solid waste and waste water treatment).
Environmental Equipment (pollution control equipment, and supporting instruments and information systems).
Resource Management (Clean energy systems and power including wind power, solar, geothermal, bio-mass, energy efficiency and resource recovery).
Investors are advised to investigate with the expertise of their brokers and advisors what firms are included in a particular “green” mutual fund, the environmental sector(s) they are focused in, and their past performance and management practices.
Church Governance and SRI Questions
Why might the Eipscopal Diocese of Washington and its parishes wish to become informed about SRI?
Becoming informed about the principles that underlie environmental, social, and governance investing can provide an opportunity for dioceses and parishes to consider the relationship between the way they act with regard to their financial assets and their understanding of Church teachings. With care, adoption of SRI principles can provide an opportunity for parishes to place their financial assets in enterprises whose practices and products are consistent with Church teaching about social responsibility and stewardship of God’s creation while earning reasonable financial returns over the long term.
In what ways does the diocese adhere to SRI principles in the management of its financial portfolios?
The Diocesan Investment Committee is responsible for oversight of these funds. Currently the DIC adheres to a non-invest policy regarding certain types of securities. Article IV, Section D6 of the DIC’s Investment Policy Statement addresses this SRI policy as follows:
In the event that individual equities rather than index mutual funds are utilized for investment in the Fund, the Investment Manager shall not invest material amounts of funds in the securities of any company that derives substantial amounts of income from the manufacture, distribution, or selling of firearms to the general public; alcohol; tobacco; or other products or services that conflict with the Christian mission of the Diocese as from time to time may be communicated to the Investment Manager by the Committee. Individual company stocks held within index mutual funds are not considered to be material amounts.
This policy applies to investment of funds within the Diocesan Investment Fund and the Soper Fund. The investment of funds in the Seton Belt Trust is within the authority of a third-party trustee, PNC Bank, which respects the limitations specified in the investment policies of the Diocese that are provided above.
Have the national episcopal church and other episcopal dioceses in the United States taken position on SRI?
In July 2015, the General Convention of the Episcopal Church passed resolution C045, which called upon the Investment Committee of the Executive Council of the Episcopal Church, the Episcopal Church Endowment Fund and the Episcopal Church Foundation “to divest from fossil fuel companies and reinvest in clean renewable energy in a fiscally responsible manner” and refrain from purchasing any new holdings of public equities and corporate bonds of fossil fuel companies.”
Some Episcopal dioceses have also taken affirmative steps with regard to following SRI principles. They include the following:
- The Diocese of New York: The diocese accepted the recommendations of its SRI task force regarding adoption of an SRI orientation in 2015.
- The Diocese of Massachusetts: In 2015 the diocese opened the Diocesan Fossil Free Fund. The fund screens out companies with more than 5% of revenue derived from fossil fuel production and allocates 5% of its assets to companies that produce alternative energy, green buildings, energy efficiency, and pollution prevention technologies.
In what ways does the Episcopal Church currently adhere to SRI principles in the management of its pension fund and other investments?
The Episcopal Church states the following about its approach to investing:
The Episcopal Church has made socially responsible investments at least since the 1960s – and we continue, following a trinity of avoidance, affirmative action, and advocacy.
- Avoidance: Not investing in companies whose activities are contrary to our social and moral values.
- Affirmative Investing: Investing in institutions that can provide financial resources to underserved communities.
- Advocacy: Voting proxies and activism that focus on constructively influencing corporate behavior.
Visit their website for detailed information on each of these areas, including the no-buy list, the economic justice portfolio, and more.
In addition, the Church Pension Group has adopted a proactive approach to socially responsible investing that emphasizes positive impact. The CPG has recently developed three videos that describe SRI principles and outline the CPG’s approach to utilizing them.
Parish-specific SRI Questions
What control does the Episcopal Diocese of Washington have over how each parish invests its assets?
None whatsoever. The Diocese does not control parish investment strategies or specific investment decisions. Each parish is entirely free to consider various investment approaches, including SRI. The Diocesan SRI Committee is intended simply to provide substantive background and materials regarding the nature of SRI and examples of SRI investment funds so that parish investment committees and other interested persons might give SRI informed consideration if they choose to do so.
If our parish invests its financial portfolio following SRI principles, what sort of performance and outcomes can we expect?
The profusion and diversity of SRI strategies make it difficult to give a single answer to the question of the performance of sustainable and responsible portfolios. Nevertheless, a growing body of research has shown that sustainable investing can in some cases produce returns that are comparable or superior to those of traditional investing. For example, a 2013 Harvard Business Review study showed that over an 18-year period “high sustainability” companies produced significantly higher returns than low sustainability companies. (Of course, a portfolio’s past performance does not guarantee future returns.) Further details can be found here.
How can our parish use the model portfolios?
The two model portfolios that we have provided are intended to be analytical and discussion tools for use if a parish wishes to consider the possibility of adopting SRI principles in the management of its portfolio. The model portfolios exemplify two somewhat differing fund emphases — an environmental and sustainable investment strategy, and a more general SRI approach – that can serve as the basis for further discussion. These model portfolios provide a starting point from which you can, for example, go to fund websites and web-based indices to look into the kinds of companies that are considered SRI-compliant and determine how they and their components have performed in the past and what their strategies are for future activity.
There are many potential approaches to and investment vehicles for SRI, so the portfolios should be viewed as a beginning rather than an end point in your discussion. In setting forth these models, the SRI Committee notes that they are merely examples of available SRI funds. The Committee is not offering any investment advice or any prediction or guarantee that the past performance of the cited funds will be any indication or guarantee of positive future returns.
Through bequests and othe gifts, our parish has received equities that do not necessarily align with SRI principles. Over time many of these have grown quite substantially in value, and we rely on the earnings to help finance the operation of our parish. What do we do?
Decisions on how to proceed in such circumstances must be made by each parish individually in consultation with its investment advisor(s). Different parishes can reach different results in deciding whether SRI is something that they wish to pursue and, if so, the degree to which they wish to pursue it. The SRI Committee was constituted to provide information about SRI for use as the basis for analysis and discussion. We are not, however, providing investment advice or suggesting that the past performance of any SRI fund provides any assurance of positive returns in the future. We suggest that you consult with your own investment advisors and make informed decisions that take into account the intersection between your economic expectations for your portfolio and your parish’s views with respect to social and environmental issues that might be addressed through alternative investments that include SRI.
What are some questions that our parish can ask our financial adviser to determine his/her level of expertise in SRI?
Given the increasing popularity of SRI, it is likely that your investment advisor will be familiar with the ever-increasing number and types of SRI vehicles that are available. A well-informed advisor should be able to address, among other things, the different forms and orientations of potential SRI investments; their past performance, both individually and as a sector; their comparability with other forms of investment, including your own current portfolio; and the consistency and quality of the managers of various funds. The questions that you have concerning SRI are likely to be very similar to the questions that you ask when satisfying your fiduciary duties with respect to any current or potential investment.