Social Investing and Religion: An Unsurprising Fit
By Steve Young, Global Executive Director at Caux Round Table
Stephen B. Young is the Global Executive Director of the Caux Round Table for Moral Capitalism (CRT). Young has published Moral Capitalism and The Road to Moral Capitalism, two well-received books written as a guide to implement the CRT ethical and socially responsible Principles for Business. In her 2008 book, The Difference Makers, Professor Sandra Waddock listed Young among the 23 persons who created the corporate social responsibility movement.
Young was educated at Harvard College and Harvard Law School. He served as an Assistant Dean at the Harvard Law School and as the third Dean of the Hamline University School of Law. He has taught at the University of Minnesota and at the SASIN Graduate School of Management in Bangkok and spoken at many workshops and conferences on corporate social responsibility and business ethics.
The current financial market volatility due to the COVID-19 pandemic has dramatically made the point (already made in September and October 2008) that market values are only nominal. There is no essence, no permanent truth, to any market price. It is here one second only to change perhaps within a few nanoseconds.
In such a world, where can investors find security? – cash? gold? US Treasuries? What valuations will hold up over time?
For investors placing a value on sustainability, some better measure of company performance is needed. It should be a measure divorced from spot market prices. Equally, investors seeking social returns that do not compromise their financial returns, need a measure of company performance and externalities which is more comprehensive than spot market prices.
Last August the US Business Partnership proposed a new fundamental for success in capitalism: companies must manage for the long-run their relationships with stakeholders – customers, employees, equity investors, creditors, suppliers, community and the natural environment. A company that reduces its risks across its business model will be worth more today than a rival exposed to future misjudgments, scandals, disruptive innovation, loss of brand, etc.
Magni Global Asset Management, using the innovative and unique intellectual property of the Caux Round Table for Moral Capitalism, has measured the companies on the S&P 500 Index for quality risk-management of stakeholder relationships. The measurement process looks at how a company engages with each stakeholder constituency. The quality of performance in each engagement category reflects an accepted standard of good conduct. Now, such standards cannot just be made upon the spot, the result of irrationalities, emotions, prejudices, ignorance, or supine negligence. Such standards must be grounded on experience and acceptable idealism. Such standards must reflect the ethics of human aspirations — our moral sense — to avoid exploitation and short-sightedness. Such standards must inform self- interest with concern for virtue. Here is where religion can come to the aid of investors. Few investors consciously link their faith with their investing. Our modern culture of capitalism and finance accepts the premise that one cannot serve “both God and Mammon”. This secular culture also separates norms from facts and using monetary nominalism to measure all values. Religion inculcates virtue and sets standards of good conduct before us. Religion cares about social outcomes and the sustainability of our well-being. Religion in its ideals seeks to promote and preserve our self- worth and our capacity for living well with others.
The Caux Round Table for Moral Capitalism studied the teachings of many religions for their insights and guidance on how to govern ourselves well in our economic undertakings. Social teachings for application in our daily lives were found in the Catholic faith from Papal encyclicals, in Islam from revelations in Qur’an, and in Judaism from the specific Halacha rules provided by the Talmud.
Thus, companies can be separately measured for the quality of their risk-management according to Catholic, Islamic and Jewish social teachings.
Such quality measurements of companies provide, for the first time, a consistent, systemic alternative to market valuations.
The Caux Round Table assessment criteria for companies is far more strategic than any ESG investment alternative. ESG is really only a mantra, a slogan, for virtue signaling. It is a generic ideal like “ethical business”, “socially responsible investment” (SRI) or “corporate social responsibility” (CSR). ESG as a philosophy has no metrics which can be applied consistently across industries and companies. What counts for high quality “S” (social) or “G” (Governance) for any analyst may not be of interest to another.
But a systematic assessment of risk-management by stakeholder constituency against universal norms of valued behaviors as used by the Caux Round Table metrics provides rigor and reliable comparative data.
Using such religious social teachings, moreover, allows faithful followers to invest in companies that are more likely than not to make the world better from the perspective of each respective faith. The faithful can then obtain what is not available anywhere else: satisfaction that they are working for themselves and, more importantly, they are advancing companies that are shepherding a more sustainable and humane global community.