Value-Based Investing
Value-Based Investing
By Dr. Gerald House
While value investing focuses on finding undervalued stocks based on financial metrics, value-based investing prioritizes aligning investments with personal values and ethical considerations. Environmental, Social, and Corporate Governance (ESG) is a form of value-based investing. Biblically Responsible Investing (BRI) is also a form of value-based investing. It takes a specific screening process to detect stocks adhering to your beliefs and moral values.
Unlike many financial investing pundits who exclaim that value-based investing reduces yield, value-based investing does not mean lower overall investment returns. Investors often find that adding value-based stocks to their portfolios is tied to higher investment outcomes. Additionally, adding value-based stocks to your investment portfolio can reduce risk-adjusted returns. The relevance is that corporations that adopt a value-based approach to their business operations improve their performance. Well-managed, good companies tend to improve their financial outcomes. There is no secret here—think Chick-fil-A.
Most investors do not consider the moral behavior of the companies they invest in, which is a tragedy. Value-based investing requires a screening process, using computerized algorithms, which allows investors to select only companies that align with their beliefs and values, thus making a difference in the world. ESG investing identifies moral values that affect environmental, social, and governance issues. BRI investing takes the screening process to another level. This type of investing aligns client investments with biblical values. This screening process not only excludes negative factors but also credits positive ones. Negative screens include gambling, abortion, tobacco, alcohol, biotech (stem cell research from aborted children), pornography, low-income financial services, human rights violations, non-married lifestyle, and homosexual activities. Positive screens encourage companies to consider supporting biblical family values, protecting the sanctity of life, promoting peace, and providing for the poor and needy. BRI screening deploys with both exclusionary and inclusionary screens. Several mutual and exchange-traded funds (ETFs) deploy these screens today. If your investment manager uses these screens, they can include individual stocks in their analysis.
The rise in value-based investing has sparked debates in the financial world about its long-term implications. As investors increasingly prioritize values over traditional metrics, financial institutions are adapting by offering a broader array of products tailored to these needs. This shift is reshaping portfolios and challenging companies to make ethical considerations integral to their strategies. As the landscape evolves, the ability to effectively measure the impact of value-based investing on both societal progress and financial performance will become crucial in determining its success and sustainability.
If you avoid shopping at stores that conflict with your Christian values, consider applying the same principle to your investment portfolio. You actively participate in the companies you invest in as a part-owner. Therefore, the moral values of these companies should be viewed through the lens of biblical consequences. We are called to be good stewards of God’s resources, even with money and how we spend it. Deuteronomy 8:17-18 reminds us of where our resources and abilities come from.
You may say to yourself, “My power and the strength of my hands have produced this wealth for me.” But remember the Lord your God, for it is he who gives you the ability to produce wealth, and so confirms his covenant, which he swore to your ancestors, as it is today.
Christians manage God’s resources, including time, talents, and possessions. We are called to use these resources for God’s glory and the benefit of others. Investing is no different. If your investment portfolio consists of companies that support abortion, transgender issues, homosexuality, and hire cheap labor from foreign countries who use child labor, we are offending God.
The future of value-based investing hinges on transparency and education. Investors must be equipped with tools and knowledge to discern whether companies truly adhere to the values they claim to represent or are only engaging in superficial efforts, often called “greenwashing.” Technology will play an essential role in this dynamic environment, providing real-time data and insights into corporate practices. Moreover, financial planners and advisors must deepen their understanding of this investing paradigm, guiding clients through the intricacies of aligning financial goals with ethical convictions. This is especially important as younger generations, who often prioritize social and environmental issues, begin to dominate the investing landscape. For many, value-based investing is not just a strategy but a responsibility—a way to leave a positive mark on the world.
Integrating faith, ethics, and finance challenges investors to look beyond short-term profits. By aligning their portfolios with their deeply held beliefs, they foster meaningful change and exemplify a profound stewardship of resources. As scripture reminds us, investing with integrity is an act of faith, a testament to the values that define us.
Your faithful steward
