Taking your Catholic values into account when investing

Question: I’ve heard people talk about “ethical investing.” What does that mean? 

Answer: Ethical investing combines the desire to obtain a reasonable rate of return with staying true to the values of the investor. It is also known as “socially responsible investing ” or “moral investing,” and it has a long history that is probably as old as investing itself. 

For example, it’s been noted that during their Philadelphia Yearly Meeting in 1758, Quakers prohibited members from participating in the slave trade. Today, ethical investing focuses on a wide range of issues, including abortion, pornography, the environment, alcohol, tobacco and gambling, to name a few. 

When investing, an important objective is to receive a reasonable rate of return for risk taken. But that can’t be our only objective. It’s important that we also consider how our resources will be used. 

As the Catechism of the Catholic Church says: “Any system in which social relationships are determined entirely by economic factors is contrary to the nature of the human person and his acts. A theory that makes profit the exclusive norm and ultimate end of economic activity is morally unacceptable” (No. 2423-2424). 

Formal vs. material 

One of the challenges of moral investing is that, due to man’s fallen nature, sin abounds. It is virtually impossible to separate ourselves completely from the sins of others. For example, consider what happens to the savings you have on deposit at your bank. Banks lend money out to individuals and businesses for a variety of purposes, some of which will certainly involve immoral activities. 

While we have a responsibility to do good and avoid evil, the Church recognizes that we live in a sinful world and can’t avoid all contact with evil. The Church guides our actions through its teaching on cooperation. The Church distinguishes between formal cooperation and material cooperation. Formal cooperation occurs when one agrees with the objectives of the other. 

Material cooperation occurs when one provides assistance to the other to achieve their objectives, even if they don’t agree with the objectives. Formal cooperation with evil is always wrong. Depending on the circumstances, material cooperation can be wrong, or it can be permitted. To better understand the difference, let’s consider a few examples. 

Suppose there is a company that does nothing but evil. If you were to invest in this company, approving of its work, you would be formally cooperating with evil, which is never permitted. Similarly — because they do nothing but evil — it would be impossible to morally invest even if you did not agree with their work. Such an investment would be unjustified material cooperation with evil. 

But what about cases where a company does a large amount of good and only a small amount of evil? The Church recognizes that investing in this kind of company is legitimate. As long as you don’t approve of it doing evil, your involvement is only remote and material. 

Another example assumes you participate in your employer’s 401(k) plan and don’t have influence over the investment alternatives that make up the plan. It also assumes that you desire to live according to your Catholic faith and see other people live and act based on principles consistent with the Catholic faith. 

Let’s say you have chosen a plan that is based on the number of years you have until retirement (target-date fund). Such a plan would invest in stocks and bonds of a number of companies. The investments would probably change over time based on decisions made by the fund manager. At times, it can be expected that some of the funds will be used for evil activities. In this case, your cooperation would be material, not formal. While it would be preferable that your retirement funds not be used in such a way, the decision to invest in the fund is allowable. 

Moral guidance 

My purpose in looking at these examples is to provide clear examples at opposite ends of the spectrum. Other situations may not be as clear. When in doubt, pray and seek solid spiritual counsel. 

Fortunately for today’s investor, there are several options available that make it easier to live out Catholic values through your investment choices. These include mutual funds and individually crafted portfolios that screen out companies involved with activities such as abortion, contraception, human embryonic s tem cell research, and the production or distribution of pornography. Advisers include: 

  • Ave Maria Mutual Funds 
  • The St. Charles Group at Morgan Stanley Smith Barney 
  •  Epiphany Funds 
  • Pro Vita Advisors 

Visit with your financial adviser or one of the above groups to see how you can “do good” by investing at least a portion of your portfolio in a manner that takes your Catholic values into account. After all, in the words of Pope John Paul II in the encyclical Centesimus Annus (“The Hundredth Year”), “Even the decision to invest in one place rather than another ... is always a moral and cultural choice” (No. 36, emphasis in original). God love you! 

Phil Lenahan is the president of Veritas Financial Ministries (VeritasFinancialMinistries.com) and the author of “7 Steps to Becoming Financially Free” (OSV, $19.95). Submit questions for this column to askphil@osv.com.