By Jason Dudek
“The Church encourages those in power to be truly at the service of the common good of their peoples. She urges financial leaders to take account of ethics and solidarity. And why should they not turn to God to draw inspiration from his designs?" – Pope Francis 5/16/13
Catholics are always right to look to scripture and Church teaching for inspiration. However, this guidance has often not been an active influence for Catholic Institutions when they decide how to manage and allocate their investments. In this article, we look beyond the perennial discussion around whether impact investments are “market-rate” to explore what inspiration we might draw from our faith in the search for substance and spirit-led action in Impact Investment.
History of Impact Investment
The intersection of social and environmental impact and effectiveness is a theme throughout human progress. Democracy and Free Markets have both qualitatively and quantitatively enhanced human civilization - and both are incredibly effective, yielding superior political and economic performance. Sustainability, for instance, is a clear business value as well as an environmental one. Even inside a business itself, if staff and management feel compelled by the goals of the business, this will generate a deeper commitment, loyalty and performance. Businesses and investments that benefit their communities and environment can and should be more effective and more profitable (especially over a longer-term view) than ones that do not. Data is beginning to emerge demonstrating this in Impact Investing, but the intersection between impact value and investment value is still developing.
Catholic Social Justice Principles have demonstrated this intersection at play in a multitude of ways throughout history. As far back as A.D. 420 St. Augustine was telling us “Faith is to believe what you do not yet see; the reward for this faith is to see what you believe.” As a young boy, I was deeply inspired by a conversation about the principle of Subsidiarity with my parish priest: that it was both a matter of ethics and effectiveness that decisions be made by those as close to their effects as possible. Similarly, solidarity and a preferential option for the poor yield powerful political and economic results, as well as being matters of urgent justice. Ultimately, God has made a world where what is just and what is best for us are the same thing – what is right, and right for us, is also better and more effective.
Investments that truly seek to serve, and are sustainable, value-based and human-centered, can and should be more effective. This is something our tried-and-true Catholic Social Justice principles directly assert: giving away power and including the poor (or our environment) is not just a matter of morality, it is a matter of effectiveness.
The Challenge
If this is true, why is it not already happening en masse, in Impact Investment and elsewhere? The answer lies in the nature of power and authority. Nicollo Machiavelli writes in Chapter 6 of The Prince:
“And it ought to be remembered that there is nothing more difficult to take in hand, more perilous to conduct, or more uncertain in its success, than to take the lead in the introduction of a new order of things, because the innovator has for enemies all those who have done well under the old conditions.”
Capital is power and manifests authority. As Machiavelli wrote, convincing those who wield power and authority to give it away is no simple task. The “gatekeepers” of capital might not agree with our biblical wisdom or Catholic Social Justice principles, and they have a fiduciary duty to focus on the interests of their shareholders first. In this context, driving toward the true transformative potential of impact investment, and the diffusion of power that it may require, is a daunting task.
We see this manifest in our current discussions around impact investment. The most prevalent is that Impact Investment represents a reductionist proposition in which investment quality and returns are sacrificed for impact. The assumption that consideration of impact inevitably leads to lower returns belies the true potential of impact investment and frames impact in opposition to investment quality. As discussed below, we at CIIC believe that such a result is by no means inevitable or necessary. Quite the contrary, the true potential of impact investment lies in seeking the profound intersection between values, impact and effectiveness.
Another important risk to impact investment is that this potentially transformative new way of deploying capital for the common good might be co-opted by gatekeepers more concerned with their own benefit rather than the intention of the investor. This co-opting was a common occurrence during the emergence of environmental movements in the late 20th century, creating the term "greenwashing”. Those individuals paying lip-service or acting without a sincere commitment to impact could dilute and ultimately derail the sincere interest of investors seeking to support positive change with their portfolios.
The Opportunity
One of the most urgent tasks I see for Catholic impact investment is the infusion of Catholic Social Justice Principles as a core bedrock for exploration and implementation of impact investment programs. With a deep history of social justice teaching and a faith defined by service, Catholics have a competitive advantage when it comes to the just diffusion of power. We are called explicitly to serve and to love, not to dominate or control. I will again quote His Holiness here:
“The world tells us to seek success, power and money; God tells us to seek humility, service and love.” (His Holiness Pope Francis, June 2 2013)
Catholic Social Justice principles and our faith call us to explore the diffusion of power in impact investment, and seek its truly transformative potential. As Catholics, we are directly called to apply a set of profound social justice principles that offer both a moral solution as well as practical effectiveness. In a world where Impact Investment needs to be vigorously engaged to become a transformative force – amidst growing global inequality and a climate emergency – Catholic Social Justice principles can and should contribute to thought leadership in Impact Investment for the good of people and planet. With thousands of years of wisdom and biblical teaching at our disposal, we can and should push Impact Investment toward its full, transformative potential.
Moving Forward
Integrating Catholic Social Justice principles is not an easy or simple project with straightforward answers. Rather, it is a journey that will likely be slightly different for each institution. However, for the reasons described above, this is a fundamentally important journey for each Catholic Investor as we try to live the challenges of our modern global community and the calls to action from our Global Church.
All of us at CIIC invite you to share your thoughts and stories about the integration of Catholic Social Justice with us at info@catholicimpact.org. We look forward to joining you on this journey.
Jason Dudek is a member of the CIIC Steering Committee, leader of CIIC’s efforts in Canada, and a long-time social entrepreneur and impact investor.
