In a context where ESG criteria (Environmental, Social, and Governance) dominate the conversation about socially responsible investing, Faith-based investing emerges as a solid alternative that places the human person at the center. Unlike other methodologies that shift with market trends, Catholic investing relies on permanent and integrity principles, aligning financial decisions with Catholic values in investing and human dignity.
What Are ESG Criteria and What Are Their Limitations?
ESG criteria represent a set of standards that assess how a company manages its environmental impact (such as CO2 emissions, resource consumption, waste, and biodiversity), its social responsibility (employee relations, working conditions, diversity, human rights, and consumer protection), and its corporate governance (management structure, transparency, risk management, ethics, and internal control).
These criteria aim to encourage good practices, initially providing investors with a sense of moral legitimacy accepting a lower rate of return in exchange for feeling they are making a positive impact aligned with their ethical priorities. This is why they are often associated with socially responsible investing.
However, ESG criteria have important limitations. For example, the metrics applied are often subjective and inconsistent. A company might receive an excellent sustainability rating while simultaneously being involved in activities that go against human dignity, such as funding abortion or engaging in questionable labor practices.
The disparity of methodologies used by rating agencies, their lack of transparency, and their frequent changes confuse investors, companies, and regulators, undermining trust in the system.
Today, ESG criteria have become a key factor in decision-making related to investments, legislation, public policy, and business activities, becoming the paradigm of an “inclusive and resilient” business. Yet, this perception is misleading: ESG criteria have shifted from being voluntary and recommended to a matter of mandatory compliance, often introducing standards that conflict with human dignity and the sanctity of life.
ESG Limitations vs. Investing with Transcendent Values
ESG seeks positive objectives, but lacking an unchanging moral foundation, it risks ethical contradictions. Companies can adapt to ESG metrics without genuinely committing to the dignity of the person. This is where Faith-based investing sets itself apart, going beyond ethical investing to establish clear and permanent principles that are not subject to ideological or political trends.
What Does Faith-based Investing Offer Compared to ESG?
In contrast to ESG criteria, Catholic investing—also referred to as Faith-based investing—proposes a truly human and transcendent approach. The Catholic Church’s Social Teaching offers an alternative economic and social framework that places the person at the center of economic and social life. Investment decisions must be based on unchanging principles and values that transcend time.
The Church’s Magisterium is not a trend; it does not shift with political or market forces. Thus, by making decisions based on faith, investors can build a strong and enduring investment strategy.
This form of ethical investing establishes a transparent and moral screening process that excludes any company contradicting these values. In this way, Catholic values in investing guide the process, not temporary market-driven standards. This approach allows investors to live out their faith through their financial choices, aligning their capital with their moral principles.
Faith-based Investing: An Integrity Investment Strategy
Catholic investing not only embraces socially responsible investing but also raises the standard. It is an alternative that combines profitability with consistency, evangelizing the world of finance. With Faith-based investing, investors seek not only financial returns but also promote a cultural transformation that defends life, dignity, and the common good.
