Faith-based investing can be an example of aligning personal values with financial goals — a strategy often summed up as “doing well by doing good.”
But is it possible to earn a return while avoiding companies that profit from activities considered morally or religiously unacceptable — such as gambling, firearms, tobacco, or pornography?
The answer: yes, no, and maybe.
As with any investment strategy, faith-based investing carries both risk and reward. Success depends on careful screening, market awareness, and long-term commitment.
A Values-Based Approach With a Long History
Faith-based investing (FBI) has long guided the financial decisions of religious institutions and individual investors.
The Roman Catholic Church played a prominent role in early values-based investing, particularly through financial activism opposing South African apartheid. It later introduced the Catholic Framework for Economic Life — a set of 10 principles that emphasize protecting human dignity, meeting basic needs such as food and shelter, and prioritizing support for the vulnerable.
Many Protestant traditions value frugality and stewardship, viewing wealth as a tool for creating good in the world. Guidestone Funds, for example, is rooted in biblical values and manages more than $15 billion in assets.
Jewish investing often includes diversification and charitable giving, with investment themes focusing on environmental health, social justice and support for Israel.
Islamic finance follows Sharia law, which prohibits investing in industries such as alcohol, gambling, tobacco, pork products and pornography, as well as interest-based lending.
From Saturna Capital’s Sharia-compliant portfolios to the Global S&P 500 Catholic Values ETF, the market now offers a variety of investment products designed to align with religious beliefs.
How Screening Works
FBI uses a mix of negative and positive screens to align portfolios with religious values.
Negative screening eliminates so-called sin stocks — companies involved in gambling, alcohol, adult entertainment, tobacco and weapons manufacturing. Selling or avoiding these holdings is often referred to as divesting.
Positive screening seeks out companies that uphold values such as environmental stewardship, ethical governance, labor rights, or corporate philanthropy. Many funds focus on firms with strong corporate social responsibility (CSR) or environmental, social and governance (ESG) practices.
Some investors apply more advanced filters, avoiding companies involved in abortion services, fossil fuels, nuclear energy, or violations of Catholic teaching. Others prioritize transparency, fair labor practices, and diversity in the workplace.
Risk and Performance
No investment is without risk. Markets fluctuate based on interest rates, inflation, war and other macroeconomic factors — regardless of moral intent. Faith-based investing is no exception.
Still, there’s evidence that FBI can produce competitive returns. A composite of equity mutual funds in the Christian Investment Forum outperformed the industry average by 77 basis points annually over the last five years.
A 2010 study cited in U.S. News found that from 1998 to 2009, Christian and Islamic funds had annual returns of 4.55%, compared with 5.72% for the broader mutual fund market.
Short-term returns may vary due to exclusionary screens. But over longer periods, performance tends to converge with benchmarks.
“On a quarter-to-quarter basis, a faith-based screen can have a noticeable impact on fund returns,” said Lofland, a financial expert quoted by U.S. News. “When looking at longer-term time periods, there has historically been no meaningful difference in performance between screened mutual funds and their market benchmarks.” (U.S. News, 2018)
Engagement and Advocacy
Beyond investing, some faith-based investors use their shareholder status to engage with companies directly — pushing for better governance, ethical practices and social responsibility.
Several mutual funds now represent investor interests in shareholder meetings, advocating for reforms aligned with faith-based principles.
“The faith-based investment approach is predicted to grow, especially as companies see the socially responsible investing agenda as good business,” said Alexander Lowry, professor of finance at Gordon College in Massachusetts. (Advent Partners, 2024)
The Bottom Line
Faith-based investing may not always outperform — but it doesn’t underperform either. It allows investors to align their financial choices with personal convictions, all while participating in markets with their eyes wide open.
“Faith-based investing is competitive,” said Robert R. Johnson, professor of finance at Creighton University in Nebraska. “If you want to feel good about your investments, then go ahead and do so. Just don’t expect that you will systematically outperform or underperform the broad market.” (U.S. News, 2018)
In short: FBI may not make you rich, nor will it guarantee protection from loss. But it can offer something few investment strategies can — a sense of integrity in how your money is working in the world.
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References:
1–6. Yahoo Finance, Ashley Kilroy, July 6, 2023, “How to Make Money With Faith-Based Investing”
https://finance.yahoo.com/news/still-money-faith-based-investing-130040821.html
7. Investopedia, Lisa Smith, Jan. 20, 2024, “A Guide to Faith-Based Investing”
https://www.investopedia.com/articles/stocks/12/investing-and-faith.asp
8–9. Advent Partners, April 3, 2024, “Investing With Purpose: A Guide to Faith-Based Investing”
https://www.adventpartnersfp.com/articles/investing-with-purpose-how-faith-based-investing-works
10–13. U.S. News, Kayleigh Kulp, Sept. 25, 2018, “6 Things to Know About Faith-Based Investing” https://money.usnews.com/investing/funds/articles/2018-09-25/6-things-to-know-about-faith-based-investing