Logos: A Journal of Catholic Thought and Culture

Logos: A Journal of Catholic Thought and Culture 6.1 (2003) 63-99

Socially Responsible Investing:
An Application of Catholic Social Thought

Gregory R. Beabout and Kevin E. Schmiesing

[E]ven the decision to invest in one place rather than another . . . is always a moral and cultural choice.

POPE JOHN PAUL II, CENTESIMUS ANNUS, N. 36

I. Introduction

THOUGH THE CONCEPT OF INVESTMENT is as old as economic life itself, economic systems and investment alike change form and acquire new characteristics with the passage of time. Over the last thirty years the phenomenon of socially responsible investing (SRI) has been changing the face of investment and corporate life, and carries with it the potential to modify a whole spectrum of relations within market economies. The relations of stockholders to corporations, managers to labor, labor to stockholders, and the corporation to the wider society all promise to undergo transformation if the practice of SRI continues to accelerate.

Socially responsible investing is, simply put, making decisions regarding placement of investment funds on the basis of concerns [End Page 63] not strictly financial in nature. That is, when one invests in a "socially responsible" way, one may take into account the earnings potential on the investment, but monetary return (or risk) is not the sole criterion. This definition encompasses a wide variety of investment tactics and motivations, and does not pass judgment on the morality of any particular motivation. For instance, it is conceivable that one could decide to invest solely in arms-producing firms in the belief that war is an occurrence beneficial to the human race. The morality and even the sanity of such a position could be questioned, but the action might still be considered socially motivated investing.

The mechanisms of SRI will be addressed in more detail below; a bare outline of the phenomenon will suffice here. SRI most often takes the form of individual decisions to invest, divest, or refuse to purchase shares of stock in corporations that an individual finds morally objectionable in some way. Possible sources of concern include the production of objectionable goods (e.g., nuclear weapons), the operation by the corporation in objectionable contexts (e.g., South Africa during apartheid), or objectionable internal corporate practices (e.g., discrimination against women). An important development in SRI is the systematization of these decisions in the form of mutual funds devoted to particular sets of concerns (e.g., "green" funds that refuse to invest in firms perceived as environmentally insensitive).

What then, it might be asked, has Catholic social teaching to do with investment decisions? In point of fact, the insights of the Church should be considered in all facets of life; in Pope Paul VI's words, "All things human are our concern." ¹ But the Church has also spoken directly to economic issues. As the opening quotation from Centesimus Annus implies, the use of wealth, including investments, is initiated in a moral context and carries with it moral implications. Earlier in the same document, John Paul affirms the important role that profit plays in economic life, but insists that profit alone cannot be the arbiter of a firm's well-being. [End Page 64]

The Church acknowledges the legitimate role of profit as an indication that a business is functioning well. When a firm makes a profit, this means that productive factors have been properly employed and corresponding human needs have been duly satisfied. But profitability is not the only indicator of a firm's condition . . . other human and moral factors must also be considered, which, in the long term, are at least equally important for the life of a business. ²

The significance of this passage will be explored below, but it is sufficient to note that if profit cannot be taken to be the sole criterion for a firm's success, then there is justification for taking into account other factors when making investment decisions.

The point of these quotations is simply to demonstrate that, while papal encyclicals have not addressed the issue...