Faith-Based Investing has deep roots. The practice of aligning capital with conscience traces back at least a century in formal investment practice, and considerably further in religious tradition. The root of Christian concerns about ethical investing reaches back to Jewish doctrine more than 3,500 years ago. John Wesley's sermon on the Use of Money identified the use of money as the second most important subject of New Testament teaching.
Religious institutions were among the first to act on those principles in modern markets. The Church of England aligned its investments with its religious beliefs in 1948. The Methodist Church in the United Kingdom established an ethical fund in 1960. The Church of Sweden set up a faith-based mutual fund in 1965 that divested from alcohol, tobacco, firearms, and armaments, making it publicly available in 1980. The Methodist Church in the United States founded Pax World Fund in 1971, specifically to divest from businesses involved in armaments, alcohol, and gambling. That fund helped create a niche market that eventually mobilized retail investors, charitable organizations, endowments, and non-governmental organizations across the country.
Today, approximately $3.8 trillion in assets are subject to negative or exclusionary screens, $1.8 trillion to norms-based screens, and $574 billion to positive or best-in-class screens, according to the Principles for Responsible Investment. Screening has moved from a practice of conscience into a mainstream investment discipline.
Screening is the process of systematically evaluating investments against a defined set of criteria before deciding whether to include or exclude them from a portfolio. For faith-based investors, those criteria are shaped by religious values. For ESG investors more broadly, they are shaped by environmental, social, and governance standards. In many cases, the two overlap significantly.
The Principles for Responsible Investment identify four elements that effective screening rules should cover: the criteria being evaluated, the thresholds against which those criteria are assessed, the methodology for applying the screens including data sources and definitions, and the rationale behind the screens. Clarity on all four is what separates a coherent values-based strategy from a vague preference.
There are two primary types of screening: negative and positive. Both are widely used. Both have distinct advantages and limitations. Understanding the difference is essential for any investor building a faith-based portfolio.
Negative screening excludes companies or entire sectors from a portfolio based on defined criteria. For faith-based investors, that has traditionally meant avoiding what are commonly called sin industries: tobacco, alcoholic beverages, gambling, pornography, and armaments. Negative screening can also be applied at a geographic level, excluding investments in countries governed by oppressive or hostile regimes.
The appeal of negative screening is its directness. An investor defines what they will not support, and the screen enforces that boundary consistently across the portfolio. It can be applied systematically, automated with third-party data, and communicated clearly to advisors and fund managers. It does not require subjective judgment about degrees of corporate virtue.
Its limitations are equally clear. Negative screening is a binary tool: a company is either included or excluded. It reflects conditions at a point in time based on available data and is not forward-looking. It applies consistent thresholds across all investments, which produces consistency but removes the ability to make context-specific judgments. And it filters out unsavory activities without actively selecting for positive ones.
The most frequently raised objection to negative screening is the potential impact on returns. If an entire sector such as energy performs well and the investor has screened it out, the portfolio may underperform relative to conventional benchmarks. Ethical investors who apply negative screening generally accept that trade-off because their objective is not solely financial return. Contributing positively to the environment and society is part of the goal.
Positive screening takes a different approach. Rather than excluding the worst, it identifies and selects the best. In practice, this typically means choosing the best-in-class company within a given sector based on ESG criteria. Under positive screening, a company operating in oil and gas or mining could still qualify for inclusion in a faith-based portfolio if it demonstrates the strongest environmental, social, and governance performance among its peers.
The process begins by identifying the issue where the investor wants to have a positive impact, then determining how to measure a company's performance against that criteria. An investor concerned about climate change, for example, might screen for companies with the lowest carbon footprint in each sector, resulting in a best-in-class selection across the portfolio.
Positive screening requires more analytical work than negative screening. It demands a multi-layered approach: research on specific parts of an organization, review of the organization from a holistic perspective, and ongoing monitoring as conditions change. That depth of research produces a better understanding of the companies held, but it also requires more time, more data, and more judgment.
The advantage is proportional to the effort. Positive screening ensures that investments meet defined standards and generate measurable social and environmental impact. It allows for context-specific decisions that a blanket exclusion approach cannot accommodate. And it positions the portfolio not just away from harm but actively toward good.
Most sophisticated faith-based investment strategies use both types of screening in combination. Negative screens establish the boundaries of what is unacceptable. Positive screens identify the best available options within those boundaries. Together, they allow an investor to build a portfolio that is both free of holdings that violate their values and actively composed of companies that reflect them.
Negative screening is becoming increasingly common among asset owners, rating agencies, and consultants as a straightforward way to ensure ESG values are applied consistently. Positive screening is growing as investors seek not just to avoid harm but to direct capital toward measurable good.
For faith-based investors, the two approaches together represent the practical expression of a conviction that has been present in religious teaching for millennia: that how money is used is a moral question, and that the answer to that question should be visible in where the money actually goes.
Start by identifying which industries or practices you are unwilling to support with your capital. That defines your negative screen. Then identify the social and environmental outcomes you want your investments to advance. That defines your positive screen. A faith-based financial advisor can help translate both into a coherent portfolio strategy that reflects your values without sacrificing competitive performance.
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References:
Principles for Responsible Investment, "An Introduction to Responsible Investment: Screening and Exclusions," 10/21/24
https://www.unpri.org/introductory-guides-to-responsible-investment/an-introduction-to-responsible-investment-screening-and-exclusions/12727.article
Ibid.
Collin, Victoria, Financial Edge, "Positive vs. Negative Screening," 10/25/21
https://www.fe.training/free-resources/esg/positive-vs-negative-screening/
Affirmative Investment Management, "Positive Selection vs. Negative Screening," 2/25/22
https://affirmativeim.com/positive-selection-vs-negative-screening/