The sustainable economy: A path to better returns for FCI investors

In his previous article, FaithInvest Executive Chair Dave Zellner challenged the misconception that faith-consistent investing (FCI) leads to lower returns. Now he explores how the concept of a sustainable economy supports the case for FCI and its potential to enhance long-term investment performance.

A sustainable economy is one that balances three key pillars: social cohesion, long-term prosperity for all, and environmental health. This framework recognises that economic success is inextricably linked to the wellbeing of people and the planet.

For faith-consistent investors, this concept aligns closely with many religious teachings about stewardship, justice, and care for creation. More importantly, it provides a roadmap for identifying investments that are positioned for long-term success.

Addressing systemic risks

One of the primary ways a sustainable economy approach can enhance returns is through the mitigation of systemic risks. These are large-scale challenges that affect the entire economic system, such as climate change, social inequality, and poor governance practices.

Traditional investment approaches often overlook these risks, focusing instead on company-specific factors. However, systemic risks can have profound impacts on long-term investment performance. By addressing these risks, faith-consistent investors can potentially improve their returns while also advancing their values.

For example, companies that proactively manage their environmental impact may be better prepared for future regulations and resource scarcity. Firms with strong social practices may benefit from increased employee productivity and customer loyalty. And those with robust governance structures are often more resilient in the face of crises.

The economic impact of sustainability themes

Research increasingly shows that sustainability themes can have significant impacts on economic growth and, by extension, investment returns. Let's consider workplace safety as an example.

A study by the European Agency for Safety and Health at Work estimated that work-related accidents and illnesses cost the global economy $2.97 trillion in 2015, representing nearly 4% of global GDP. Improvements in workplace safety could recapture a significant portion of this lost productivity, benefiting both workers and investors.

This is just one example of how addressing sustainability concerns can have tangible economic benefits. Similar cases can be made for issues such as clean energy, affordable housing, and equitable access to healthcare and education.

Role of public policy

Achieving a sustainable economy requires supportive public policy. Faith-consistent investors can play a crucial role in advocating for policies that promote sustainability and long-term value creation.

This might involve supporting carbon pricing mechanisms to address climate change, advocating for improved corporate disclosure requirements, or backing initiatives to promote social equity. By helping to shape a policy environment that supports sustainability, faith-consistent investors can create conditions more conducive to long-term investment success.

Corporate engagement & transparency

Another key aspect of building a sustainable economy is engaging with companies on important issues. This can involve encouraging greater transparency in corporate lobbying activities, pushing for improved environmental practices, or advocating for better labour standards.

Through these engagement efforts, faith-consistent investors can help companies address risks and capitalise on opportunities related to sustainability. This not only aligns with faith values but can also enhance long-term corporate performance and, consequently, investment returns.

Conclusion

The concept of a sustainable economy provides a powerful framework for faith-consistent investing. By focusing on social cohesion, long-term prosperity, and environmental health, investors can address systemic risks, capitalise on emerging opportunities, and potentially enhance their long-term returns.

In our final article, we'll explore specific examples of how faith values can guide risk mitigation strategies and drive positive investment outcomes.

This is the second in a three-part series on faith-consistent investing by FaithInvest Executive Chair Dave Zellner.

Read the first article challenging the misconception that investing in line with faith values will inevitably produce lower returns by clicking below.

PART ONE