What is faith-based investing?

Faith-based investing, sometimes referred to as biblically responsible investing, is a practice of allocating investment assets in a way that honors God and follows the principles of the Bible. Optimally, this includes avoidance of stocks or bonds of publicly traded companies that are associated with an activity that is considered unethical or immoral. (See Investopedia’s definition.) Some examples of business practices we avoid are those that are harmful to people (human trafficking, pornography, gambling, tobacco, abusive labor practices, abortion) or that promote values that are not biblical or that contradict family values.

In many cases, faith-based investing practitioners also seek out the stocks of companies that promote biblical and family-friendly values or that promote human flourishing. This could include clean energy or technology, healthcare firms, home ownership opportunities, among others. At LightPoint® Portfolio Solutions, we call these businesses “Shining Light Companies.”

I hear terms like ESG investing, ethical investing, and impact investing that sound similar to faith-based investing. What is the difference?

Ethical investing means choosing investments based on ethical or moral principles. It is a broad term and can encompass Biblically Responsible Investing, but it can also be used to describe the selection of investments for any code of ethics or personal ethical principles. It is often used to reflect ethics pertaining to political and social beliefs and does not always consider the stocks’ investment fundamentals.

Socially Responsible Investing (SRI) involves choosing investments based on their social impact. Often, SRI is heavily influenced by the politics or social norms that are predominant at the time. While there can be some commonality with ethical investing, Socially Responsible Investing is generally focused on social justice, environmental advocacy and concerns, community investing, clean technology and alternative energy. Some consider it to be synonymous with ESG investing.

Values-based investing is typically used to indicate an investing philosophy that is consistent with an individual’s moral values. It can encompass faith-based investing, but can also refer to values like environmental or social concerns. It should not be confused with “value investing,” which refers to investing based on the current or projected financial value of a security.

Impact Investing is investing in companies based on their ability to effect some type of social or environmental change. It is a broader term and seeks social impact while also seeking profit. Impact investing looks to serve society or to be involved in a positive effect on society. Socially Responsible Investing (SRI) and Environmental, Social and Governance Investing (ESG) are two prominent types of impact investing.

Corporate Social Responsibility (CSR) or Corporate Citizenship are two terms to describe a company’s efforts to provide a benefit to society beyond producing goods or services. It can involve philanthropy, volunteering, employee engagement, ethical standards, and environmental concerns. It typically does not involve investing, but represents a company’s self-generated activities. It is distinct from Socially Responsible Investing.

Environmental, Social, and Governance Investing (ESG) is a metric used by certain socially conscious investors to evaluate a company’s impact when considering an investment. Environment pertains to a company’s responsibility toward nature or the environment. The Social aspect is community focused and involves the company’s interactions with its community, customers, suppliers, and employees. The Governance element of ESG deals with internal management/leadership (including executive compensation, internal controls, and audits) and shareholder relations. Depending on the situation, there can be overlap with Impact Investing, Sustainable Investing, or Socially Responsible Investing, and sometimes Biblically Responsible Investing is included under this grouping. ESG Investing is currently undergoing rapid change and development in its scope and definition.

Questions about other terms? Tell us here, contact your financial advisor or visit www.investopedia.com.

What is a “negative screen” in faith-based investing?

Negative screens generally exclude those stocks of publicly traded companies that are considered immoral or unethical to many people. Some of the categories that typically fit into this category are those involved in pornography, adult entertainment, gambling, human trafficking, child labor, abortion, tobacco, alcohol, and firearms or weapons. This list is often formed according to the beliefs of a particular faith or cultural or political system. Because there is no commonly agreed-upon definition of “sin stocks,” LightPoint Portfolios does not typically use that term.

What is a “positive screen” in faith-based investing?

A positive screen seeks a security of a company that provides a benefit to society and humanity by the way in which they do business or by the service or product that they provide. LightPoint Portfolios actively seeks out and invests in companies with a positive, biblically consistent impact on the world, categorizing them as “Shining Light” companies. Most companies in the faith-based investment arena conduct negative screens when constructing their portfolios, while some also (like LightPoint Portfolios) also engage in positive screening.

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