Catholic Wealth Management: Thou Shalt Invest for Impact

Wealth management firms’ forays into faith-friendly investing has shown that not all followers of a given religion care about the same things.


Faith-based organizations have long shunned certain investments in the name of putting their money where their moral beliefs are. Over the past few years, however, religious institutions have begun to move beyond a strategy that simply screens out what is proscribed by a certain religion — such as alcohol or birth control — to one that seeks out investments in the common good.

This shift is part of the broader trend of sustainable, responsible and impact (SRI) investing, a growing discipline that considers environmental, social and corporate governance criteria in its analysis. Increasing numbers of institutions and individuals want their investments to reflect their values, and the financial services industry has begun to pay attention. But catering to SRI clients can be tricky, because not everyone cares about the same things.

“Given the range of interest that clients have, we’ve learned that the financial advisers really benefit from having an organized set of tools that help them engage with a client around the specific themes that client is interested in,” says Hilary Irby, New York–based head of Morgan Stanley’s Investing with Impact Initiative, which kicked off in 2012 and now offers more than 130 investment products.

Morgan Stanley Wealth Management is developing a series of platforms to help the firm’s financial advisers provide specialized SRI investing. The first, officially launched in early October, is the Catholic Values Investing Tool Kit, which offers customized portfolios consistent with guidelines established by the U.S. Conference of Catholic Bishops in 2003. The platform allows investors to avoid companies engaged in activities inconsistent with Catholic values, such as discrimination and predatory lending, while investing in those having a positive impact, like, for example, a developer of affordable housing.

There’s no fixed timeline for launching the other platforms — various SRI specialties, including environmental and social themes, as well as other faiths — but Irby expects the next one by year’s end. The firm began piloting the Catholic tool kit over the summer. Since then, more than 1,200 advisers have signed on to the service.

As an adviser working with many faith-based institutions, Phil Shaffer, a managing director at Morgan Stanley’s Graystone Consulting, in Columbus, Ohio, says his team was an early adopter of the Catholic tool kit and that it has helped bring in new business.

“My team focuses on endowments, foundations and health care, and we’ve been unusually successful in attracting new business over the last couple of years,” he says. “When we go out and compete with other consultants, the fact that we have these tools and are very conversant in this area is very important to faith-based clients. We also have a number of Catholic clients who have historically been more of the exclusion type, and they have begun using the tool kit and are very excited about the proactive piece — not only to avoid harm but to do good — and some of the increasing investment options we can show them.” Shaffer points to a couple of companies that have sparked client interest recently: a major pharmaceutical maker that is increasing access to HIV/AIDS medication in Africa, and a large hotel chain that has taken up the fight against human trafficking.

Advisers who work with impact investors agree that customization is key, even within religious denominations. “Not all Catholics think the same,” says James Ryan, a private wealth adviser at the Ryan Group, an arm of Merrill Lynch Wealth Management. “After abortion, there’s disparity among Catholic investors as to how they understand their faith and the Gospel.” One good example, he says, is the varying Catholic views regarding war. “There are some orders of nuns in particular that are very leery of owning any company that gets a preponderance of its revenue from military contracts or from weapons,” Ryan says. “On the other hand, there are those who quote St. Augustine’s just-war doctrine.”

The boom in impact investing has come largely on the back of increasing recognition that investors need not sacrifice returns to invest responsibly. In fact, companies with strong environmental, social and governance standards perform as well as or better than their competitors. Deutsche Bank researchers, whose findings were published in a 2012 report, examined roughly 100 studies on sustainable investing and found that high ESG ratings correlated with a lower cost of capital in all of them and 89 percent of the cases analyzed showed market-based outperformance.