Government agencies and thousands of investment managers have embraced the Environmental, Social, and Governance (ESG) ideologies and are forcing those concepts onto Americans, American businesses and American families. ESG refers to a corporate scoring system that evaluates how a company protects the environment, adheres to social criteria (diversity, equity, and inclusion), and governs as a corporate, global citizen. While this seems like a good measure of corporate responsibility, an anti-Christian bias has crept into the measurement.

According to the CFA Institute, 85% of managers “reported that ESG has become a larger priority within their company’s overall investment strategy.” ESG scores are compiled on companies that address their compliance and risks related to environmental, social, and governance in their corporate practices.

The majority of investment firms include ESG as a factor in their evaluation of whether or not a public company should be included in the portfolio they manage on behalf of their investors. Money management giants Blackrock, Vanguard and State Street control a large majority of the companies found in major stock indexes. Former Republican presidential candidate, Vivek Ramaswamy, made this phenomenon a cornerstone of his campaign calling them “agreeably the most powerful cartel in human history.” 

There is some evidence that these firms have been backing away from some of the more controversial proxy votes, but some of the key factors in the ESG movement have tremendous influence over these firms. 

For instance, Larry Fink, the CEO of Blackrock, actively contributes to the controversial World Economic Forum, a proponent of globalization and the basic tenets of ESG. Fink has repeatedly stated that Blackrock has an obligation to “force behaviors.” He states, “Behaviors are going to have to change, and this is one thing we are asking companies. You have to force behaviors, and at BlackRock we are forcing behaviors.”

Some believe that ESG scoring shares similarities with China’s social credit scoring system, where the government controls various aspects of citizen’s lives. For example, if a citizen engages in behavior the government does not like, such as attending a Catholic Mass, their ability to carry out daily tasks, such as purchasing gasoline, can be impacted. As a result, behavior changes immediately.

Many Catholic investors, especially Catholic institutions such as dioceses, parishes, apostolates, schools, and religious orders, are attempting to comply with Catholic values or U.S. Conference of Catholic Bishops’ 2021 “Socially Responsible Investment Guidelines.” They have often constructed portfolios by eliminating companies involved with abortion, embryonic stem-cell research, child labor, contraception, and pornography, among others. For Catholic institutions and high net worth investors attempting to comply with the USCCB guidelines, the following factors explain a few conflicts between Catholic values and ESG.

 

Investment Consultants and Money Managers Responsible for Managing Billions of Christian Dollars Have Anti-Christian Values. 

There has been a massive consolidation in the investment industry over the last five years. Private equity firms that are consolidating independent investment advisors are competing with Wall Street firms to buy independent money managers and advisers. Because firms with Christian cultures are selling to the secular world, they have lost Christian values. Furthermore, these now secular firms are offering services to all investors including those that have values that can be anti-thetical to the Church. Catholic investors should ask the following questions to advisers and managers such as:

o Can you explain your donation practices by your firm and foundation?

o Can you show us a list of organizations that you supported?

o Can you describe your approach to religious freedom in the workplace?

The Answers to these questions can be surprising. There are many anti-Christian anecdotes, and it is clear that many firms have checked their Christian values at the door. 

 

ESG has perpetuated de-platforming and de-banking Christian organizations.

When an organization is “de-platformed,” it stifles their ability to reach the customers, constituents, and donors. For instance, “Numerous Family Policy Councils (FPCs) have been kicked off their Customer Relationship Management (CRM) programs that enabled them to send out newsletters … constituent data, and interact with members of their community,” according to an article in Family Voice. 

Banks have been canceling religious customers for so-called “representational risks.” According to a recent article by Vision Christian Media, “Among the groups recently ‘cancelled’ are Indigenous Advance Ministries which helps orphans and widows in Africa; the Family Council of Arkansas which promotes traditional family values; the pro-family Ruth Institute; and even the National Committee for Religious Freedom.” 

Unfortunately, ESG adoption by many companies has excused this corporate behavior. Federal bank regulators have offered cover as well. Fortunately, a large number of state attorneys general have begun to focus on the negative impact of the issues. 

 

Proxy voting is ignored and misunderstood by many Catholics.

A proxy vote is the right of any shareholder who does not attend the annual shareholder meeting to vote or delegate that vote on a variety of issues that must be approved by the shareholders. For Catholics and Catholic institutions, portfolios are often constructed with the U.S. bishops’ guidelines in mind. We frequently ask the question about how proxies are voted, and the most common answer is that they expect that the managers are voting in accordance with Catholic values. In the newest version of USCCB guidelines, embracing corporate engagement and proxy voting is required. Here’s the rub: most managers delegate to proxy voting firms, and for many of them, Catholic voting comes very short of what most Catholics expect.

Case in point: The premier proxy voting firm with a 60% market share and very prominent in ESG voting has “Catholic guidelines” but has a neutral opinion on embryonic stem-cell research, euthanasia, gender modification, and puberty delay. 

 

Child, slave labor, and energy poverty are often ignored.

Human dignity, worker’s rights, and serving the poor and vulnerable are all key themes of Catholic social teaching. A key component of lithium battery production is cobalt, and the Democratic Republic of Congo (DRC) holds more reserves than the rest of the planet combined. “All cobalt sourced from the DRC is tainted by various degrees of abuse, including slavery, child labor, forced labor, debt bondage, human trafficking, hazardous and toxic working conditions, pathetic wages, injury and death, and incalculable environmental harm,” according to the best-selling book Cobalt Red — How Blood of Congo Powers our Lives. It is a very sad read, indeed. 

China refines most of the world’s cobalt and controls the majority of mining in the DRC. “According to the OECD, (Organization for the Economic Co-operation and Development), up to seventy percent of the cobalt from the DR Congo has some touch of with child labor.” Most work for a dollar or two a day, and sadly, more than 95% of the citizens in the Congo are Christian, with 47% being Catholic, one of the largest concentrations of Catholics in the world.

Higher energy prices have an outsized impact on the poor and marginalized as well. The U.S. and the West tend to ignore the enormous energy poverty in much of the world, especially in Africa. 

According to the Center for Strategic and International Studies, “Africa is already facing an energy crisis. It is the home to 600 million people who lack access to energy — a figure that is equivalent to 1.8 times and 1.5 times the size of the U.S. and EU populations respectively. More than three-fourths of the world’s population that do not have access to energy live on one continent. 

Energy poverty is actually getting worse. In 2021, there were 4% more people without access to electricity compared to 2019.” Africa is growing rapidly and demand for natural gas is increasing. Unfortunately, the European Union, not unlike the U.S., is calling for a phase out of fossil fuel investment which would cripple this poor continent.

For Catholics, for the sake of the poor and marginalized, there needs to be a balanced view about the elimination of natural gas investment and production. Unfortunately, many are unaware of the whole picture.

 

Most “social” or ESG investment products are not Christian, and some “Christian” products aren’t what they seem.

Our role in evaluating investment products is to determine if a manager’s track record is quality and whether it is repeatable. For any good investment consultant, this requires an intensive analysis that is both qualitative and quantitative. The next step is to determine whether the manager has a solid process in constructing a Catholic values-based portfolio. 

Catholics may be drawn to social or ESG products, but in most cases, the objectionable areas such as abortion, pornography, child labor, embryonic stem-cell research, contraception, and others are not screened from the portfolios. Surprisingly, many Christian products are hit and miss on what they screen. Based on our research of Christian and Catholic mutual funds, the screening of key areas is mixed at best. 

Anecdotally, we were vetting a product with Catholic in its name. We discovered that a top holding in the portfolio was a Chinese hospital, an almost certain violation of any Catholic value portfolio. Their explanation was that the portfolio was “primarily” Catholic. We did not find this answer acceptable. Thankfully, this manager has adjusted its thinking and now adheres more strictly to its Catholic methodology.

In conclusion, Catholics and Catholic institutions need to do a better job as asset managers, fiduciaries, and stewards of God’s resources. The “cancel culture” has been a wake-up call for most Christians, but the details behind the ESG movement and conflict with the Church has not been as apparent. With better Christian investment products, managers and vendors along with understanding the influence that we can have in the marketplace, it is time to evaluate investment programs. We are also confident that these improvements can be made with no investment return “give-up” in a renewed Christian solidarity.

Billy Graham said, “Courage is contagious. When a brave man takes the stand, the spines of others are often stiffened.” 

It is past time for Christians to stiffen their spines.

 

Richard Todd is CEO and co-founder of Innovest Portfolio Solutions, which provides investment consulting services to faith-based organizations. He has almost 40 years of experience in investment consulting and currently provides consulting services to institutions and families. Innovest has more than 300 clients with assets under advisement of $45 billion and 60 employees. Todd has been a frequent author on fiduciary and investment related matters.