The Catholic Church has a rich history as a supporter and participant in a market-based economy. Yet the Church also recognizes the potential for abuse, exploitation and violation of human rights and the environment when economic life is lived separately from spiritual life. The Church has numerous writings illustrating ways to unify the demands of faith and finance. But even in the secular world, the fiduciary role has evolved in recent decades along with the rapid growth of the socially responsible investment movement. Today, expanded fiduciary responsibilities are confirmed and supported by a legal framework that affirms that ethical considerations can and should play an important role in portfolio stewardship.
Traditionally, most fiduciaries have been focused strictly on the narrowest interpretation of their role—managing assets and measuring success strictly by quantifying investment results. Certainly investment returns are of paramount importance, but adopting such a limited interpretation of fiduciary responsibilities has impeded many organizations from more fully integrating faith and finance. At the same time, however, a more holistic interpretation that includes consideration of nonfinancial criteria in the investment process does not change the reality facing Catholic institutions. In order to carry out their missions these institutions need to protect and grow their assets.
Fortunately, taking into account Catholic ethical principles in the investment process is no impediment whatsoever to achieving optimal risk-adjusted returns. In fact, there is a compelling argument that companies which hold themselves to higher societal and environmental standards are better managed and offer better long-term prospects for investors.
Most institutional portfolios include diversified holdings across a broad cross-section of the economy. Long-term portfolio returns, therefore, correlate more closely to the strength of the economy as a whole as opposed to the performance of any single investment. A company that increases profits by imposing costs on society does not serve shareholder interests over the longer term. Irresponsible business practices simply shift those costs from one area of the portfolio to another. Therefore, the scope of fiduciary oversight of institutional portfolios should hold managements accountable for responsible actions. That’s exactly what Catholic fiduciaries strive to do.
A fiduciary that neglects to take the broader view does a disservice by exposing the investor he or she is representing to excessive and unnecessary risk. History has demonstrated that consideration of some nonfinancial criteria in the investment process is not only admirable from an ethical perspective, it is also a powerful tool for portfolio management.
All economic life should be shaped by moral principles. Economic choices and institutions must be judged by how they protect or undermine the life and dignity of the human person, support the family and serve the common good.
United States Conference of Catholic Bishops,
A Catholic Framework for Economic Life