The Omission and Promise of Impact Investing
by Brett Smith
“For whoever wants to save their life will lose it, but whoever loses their life for the gospel will save it. What good is it for someone to gain the whole world, yet forfeit their soul?” Mark 8: 35-36
What would you say if I told you that secular investors are far outpacing faith-based investors in the practice of impact investing? Let’s first define the term, of course. Impact investing is defined as “investing with an intention to generate positive, measurable social and environmental impact alongside a financial return” (GIIN, 2020).
Faith-based investors often align their values with their investments, but we’re only getting half the picture. Recent studies suggest 88% of faith-based investors use some form of negative screening to eliminate companies or industries that they consider unsuitable. However, only 11% of faith-based investors allocated capital to impact investing, missing out on the opportunity to screen in positive outcomes such as human flourishing (1).
While people have speculated about possible explanations, we developed a study at the L.I.F.E. (Leading the Integration of Faith & Entrepreneurship) Research Lab at Miami University in Oxford, Ohio to understand how faith-based investors were able to overcome some of the challenges that were holding them back from impact investing. Through a collection of 99 data sources including interviews, conferences, and secondary data, we identified four key issues that enabled faith-based investors to participate in impact investing.
Impact investing is about multiple identities. One of biggest challenges for faith-based investors considering impact investments was managing their identities. While much has been written about our identity in Christ, investors often experienced multiple identities in the context of impact investing. Specifically, investors managed three different identities: an investor identity – which focused on the economic side of gaining a financial return, a social identity – which focused on solving a persistent problem to contribute to human flourishing, and a faith identity – which focused on listening to where they were called and contributing to human flourishing. For faith-based investors, one of the primary lessons was gaining an awareness of these multiple identities and the potential tensions among these identities in the context of impact investing.
Impact investing requires prioritization. Due to the potentially conflicting goals of these three identities, investors often experienced identity tensions as they were pulled in multiple directions. While impact investing idealizes the potential for maximizing financial, social and spiritual returns, the expectations from the norms of investing occasionally conflicted with the goal of human flourishing. As investors compared these trade-offs, they often prioritized their faith-based identity in order to reduce these tensions. While prioritizing didn’t eliminate these identity tensions such as accepting concessionary returns, it did provide a focus for their decision-making.
Impact investing depends on measurement. While clear models exist for investors to measure financial performance, there is much greater ambiguity and challenge for measuring social and spiritual performance. As a result, investors used two different paths for measuring these latter types of performance. One approach simplified the challenge of measuring spiritual returns. For example, some investors viewed social returns, such as the employment of marginalized people, as a spiritual return. This approach simplified the challenge of measuring spiritual returns. Other investors engaged in a process of measuring financial, social, and spiritual returns separately. The measurement of spiritual returns ranged from generalized rankings (1-5 scale) to specific measurements of fruit of the spirit (2). Regardless of the approach, investors engaged in due diligence on the social and spiritual returns of the investment.
Impact investing is about obedience. Faith-based investors clearly identified the importance of obedience to God in regard to their investment practices. For some investors, obedience meant the intentional inclusion of social and / or spiritual returns as part of their investment portfolio. For other investors, obedience required them to sacrifice some financial returns for increased social and / or spiritual returns. For example, MIGMIR funds is called “up and left” to concessionary financial outcomes and magnified social and spiritual outcomes. Regardless of the calling, faith-based investors were generally called to surrender their will for the capital to submit to God’s will for the capital. The act of surrendering was not a one-time decision but rather an ongoing, daily process. As one active investor explained, “I am on my knees every morning asking about His will for the capital…but, I am still on the S in surrender.”
While impact investing is expanding rapidly across the globe, the vast majority of faith-based investors have yet to include impact investing as a significant part of their portfolios. These four lessons may help inform other faith-based investors about impact investing and encourage their participation in the intentional inclusion of impact investing in their portfolio.
It’s important to acknowledge that obedience of faith-based impact investors varied just as obedience does in the Bible. In the Bible, some were called to avoid eating an apple and others to go to a place that God will show them. In the same way, the specific form factor is far less important than the obedience to pursue how God might be calling you into impact investing. Greater participation of faith-based investors in impact investing offers the potential to mitigate persistent social problems for marginalized people around the world and promote human flourishing for the sake of the gospel and the glory of God.
For a copy of the complete study, please contact me directly: smithbr2@miamioh.edu
Thanks to my co-authors Amanda Lawson, Jessica Jones, Tim Holcomb, and Aimee Minnich.
Thanks to many of our friends within the FDE / FDI community that made this study possible. Special thanks to Greg Lernihan, Tim MacCready, Aimee Minnich, and Henry Kaestner who were gracious with their time and insights.
Finally, thanks to L.I.F.E. Research Lab for providing funding to make this study possible. The goal of the L.I.F.E Research Lab is to create practically-relevant, academically-rigorous research at the intersection of faith and entrepreneurship. For more information, please visit: https://miamioh.edu/fsb/academics/entrepreneurship/focus-areas/social-entrepreneurship/leading-the-integration-of-faith-and-entrepreneurship-research-lab/index.html
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Footnotes
(1) Engaging Faith-Based Investors in Impact Investing, Global Impact Investing Network (2020).
(2) For additional information about this measurement approach, see Eido Research: https://www.eidoresearch.com/
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