Holy Week Special: Investing in the Catholic Faith

This week Catholics in Europe celebrate the Holy Week, the week between Palm Sunday and Easter, observed with special solemnity as a time of devotion to the Passion of Jesus Christ. Many investors seek to align investment decisions with their personal beliefs. But can you be a good investor without giving up your ethical principles? The answer is yes. That's why we want to show in this article which faith-based funds - also ETFs - invest in companies with the Catholic Church's criteria in mind, so that investors can keep them on their radar.

E.T.H.I.C.A.

Virginie Dubois, Vice President, Equity Product Specialist at Allianz Global Investors

Cada día está más claro que los inversores ya no buscan únicamente rendimientos financieros. Sino también otro tipo de rendimientos no financieros, ya estén relacionados con objetivos medioambientales, sociales o éticos. E.T.H.I.C.A. was created with the intention of offering an investment solution to investors who wish to invest in accordance with their ethical values while aiming to generate returns over a market cycle. Beyond church-related organisations, the fund's ethical strategy can be attractive to both institutional and individual investors. The fund already has nearly 120 million euros AUM ending February 2024.

How does E.T.H.I.C.A. intend to meet its financial and ethical objectives? Well, in particular, E.T.H.I.C.A.'s objective is to outperform the MSCI EMU index while investing in accordance with the principles of the social doctrine of the Catholic Church.

E.T.H.I.C.A.'s investment philosophy was actually born out of a close collaboration between the National Episcopal Conference of the Bishops of the Catholic Church in France (CEF) and one of Allianz GI's leading experts in Sustainable and Responsible Investment (SRI): Christine Clet-Messadi.

As a result of this partnership, E.T.H.I.C.A. has integrated into its investment process the 6 principles of the Catholic Church's "Ethical Guidelines for Financial Management": human rights, respect for life, peace promotion; respect for fundamental labour rights; development of social progress and employment; protection of the environment; compliance with market rules; compliance with best governance practices. These principles are further refined into 23 more specific criteria that guide all investment decisions. In particular, the fund rules out investing in companies with practices related to abortion, contraceptives that prevent reproduction and embryonic stem cell research. Companies related to weapons, adult entertainment, gambling or tobacco are also excluded from the portfolio.

As part of Allianz GI's Conviction Equity Strategy, which currently manages EUR 10 billion for its clients, E.T.H.I.C.A. is a prudent, fundamental-based fund with a long-term investment horizon in line with the Church's need to preserve capital.

Invesco MSCI Europe ESG Leaders Catholic Principles UCITS ETF

Laure Peyranne, Head of ETF for Iberia, Latinoamerica & US Offshore at Invesco

Aligning investment decisions with personal beliefs. 

Aligning your personal beliefs with your investments makes sense and is the most powerful reason for the development of responsible investment in recent years. Indeed, if an investor is committed to human dignity or environmental care in his or her personal life, it is quite logical that he or she would seek to ensure that his or her investments meet the same criteria.

The Invesco MSCI Europe ESG Leaders Catholic Principles UCITS ETF, launched more than five years ago, aims to provide a response to investors who wish to align their investments with the ethical criteria set by the Catholic Church.

In order to define the investment universe of the ETF in line with Catholic values, Invesco has collaborated with the index provider and the Catholic Church. This ETF seeks to provide exposure to large- and mid-cap European companies that comply with the values of the church, excluding all companies and sectors that run counter to those principles, with activities that may undermine life and dignity, such as conventional weapons, adult entertainment, abortion, animal testing or stem cell research.

In addition, our methodology promotes company engagement through a best-in-class selection process, which aims to incorporate those companies with the highest ESG ratings. This allows the fund to be Article 8 under the SFDR and its ESG rating according to MSCI ESG Research to be the highest, AAA. These criteria do not represent a drag on performance as the ETF has scored over 45% since its launch in January 2019, which equates to an annualised return of almost 9% (to 22/03/2024).

Thanks to the transparency of ETFs, investors can find the fund's complete portfolio on the fund's website at any time, so that they can see the positions in detail. In this way, the ETF aims to be a transparent, easily accessible and cost-competitive (0.3% per annum) alternative for investing with Catholic values and ethics in mind.

Conciencia Ética Tressis

Jorge González, Head of Analysis at Tressis

Currently, investment funds that meet the criteria of the Church are based on the encyclical Laudato si, the encyclical Fratelli tutti and the Social Doctrine of the Church, as well as the indications of the Dicastery for Integral Human Development, whose ESG (Environment, Social, Governance) aspects are based on the values of the Economy for the Common Good movement. These two encyclicals show a certain concern for new sources of production and energy, which is one of the points of greatest concern to the managers of this type of fund. But if we review past encyclicals, Mater et Magistra (1961), issued by Pope John XXIII, focuses on social and economic development in the contemporary world. It addresses issues such as the integral development of the person, collaboration among nations and the promotion of the common good. From this perspective, it offers guidance on how investments can contribute to sustainable human development and poverty reduction. Principles that do not deviate much from the SDGs adopted 55 years later.

In the case of Ethical Conscience, when deciding which investments to include in the portfolio, in addition to financial criteria, socially responsible investment criteria are followed, inspired by the values of the Social Doctrine of the Catholic Church and its ethical ideology, based on positive value criteria (well-being of society; commitment to the third world: reconciliation of family life and work; responsibility and social justice; environmental sustainability; and labour rights) and negative or excluding criteria (armaments; alcohol; gambling; harmful to the environment or that violate fundamental rights). Most of the assets comply with the ethical ideology, and there is an Ethics Committee that meets quarterly to ensure compliance with this ideology and its investment principles. None of the securities in the portfolio fails to comply with the exclusion criteria established by the Ethics Committee, which aim to guarantee the principles of: protection of human life; defence of peace; respect for human rights; and protection and promotion of health. Some of the main stocks in portfolios are: ASML, RWE, Schneider Electric or Mercedes. Meanwhile, in fixed income, the issues of companies such as Erste, Iberdrola or Adif stand out, together with public debt of the main developed countries.

In the case of Tressis, the clients that have been the main drivers of this type of investment have been religious institutes. Congregations have been concerned for many years with trying to align their investments with their founding missions. For their part, many foundations are modifying their investment decision-making procedures to adapt them to the provisions of the CNMV Code of Conduct.