The Parable of the Talents is often referenced when the topic of investing arises. The story aims to teach us that talents (our money, resources, tools, or gifts) are to be placed out in the world and put into action where they can benefit others, grow, and then come back multiplied. The principle applies to faith-based nonprofits, as well as individuals and for-profit businesses. When a faith-based organization finds itself with extra cash, the organization should consider whether investing these extra funds prudently would be in the organization’s best interest.
For example, consider a faith-based school that receives donated property, which the school is able to sell for a profit of $500,000. If the school’s annual operating expenses are $200,000, the remaining $300,000 will earn only standard interest rates unless some portion is prudently invested. The board may decide to invest some of the additional funds to increase the resources available to the organization and its programming. However, the organization should be conscientious that it does not invest in opportunities that contradict its mission and religious beliefs.
Impact Investing: The Basics
Fortunately, a new approach to investing has been gaining momentum. Impact investing, the cool kid on the investment strategy block, offers faith-based nonprofits an opportunity to grow their “talents” while remaining true to the organization’s mission and religious beliefs. An “impact investing” strategy seeks to provide financial returns as well as promote social and environmental change that aligns with investors’ (in this case, the faith-based nonprofit’s) values.
How popular is this newer strategy? “Sustainable portfolios” (a type of impact investment fund that focuses on environmental, social and governance investments, commonly known as “ESG”) in the United States received about a quarter of all new assets in mutual funds and exchange-traded funds in 2020, according to Morningstar. Since 2018, there has been a 42 percent increase in what are considered “sustainable investing assets” currently amounting to 1 in 3 dollars under professional management, according to the US SIF Foundation.
Faith-Based Nonprofits and Impact Investing
For a faith-based organization, some appropriate impact investment opportunities include health care, education, energy and agriculture. Investments in these causes may have a positive effect, such as funding the development of educational technology by a company that creates learning software for children, or bonds that underwrite and support construction of housing for those in need.
Faith based nonprofits may be encouraged by their own leadership or donors to pursue impact investing. This makes sense for a few reasons:
However, there are also a number of issues that faith-based nonprofits should remain mindful of when considering impact investing:
If your nonprofit is ready to learn more about faith based funds or managers, consider designating a board member to research potential investment opportunities and to provide proposals. An accessible starting point is an internet search of the terms “Christian, Catholic, faith based investing.” The following sites linked in the “Further Reading” section promote Biblically aligned funds and resources may provide helpful information:
Faith based nonprofits have long aimed to carry out the lesson of the Parable of the Talents. Now, that the financial sector offers impact investment funds, nonprofits have more opportunities to fund important social objectives in ways enlightened by the Biblical lesson of the talents. However, faith-based nonprofits would be wise to approach impact investing with open eyes to the numerous issues that may compromise the organization’s tax-exempt status.
Examples of Impact Investing Funds:
(Please note that Napa Legal does not endorse any of the organizations and provides the links for informational purposes only. Nonprofits are encouraged to seek out professional advice for guidance regarding management fees, potential annual returns, etc. before any investment is made.)
January 16, 2023 | Faith-based nonprofit organizations should recognize whether they are obligated to follow the requirements under the Fair Labor Standards Act (“FLSA”).
December 13, 2022 | Faith-based nonprofits will likely face more lawsuits and government actions challenging religious freedom after Congress passed the Respect for Marriage Act (RMA) repealing the Defense of Marriage Act of 1996. The RMA impacts faith-based organizations in two specific situations. Both relate to interactions between the faith-based organizations’ work and the state and federal government. The threats to faith-based organizations remain despite language in the RMA purporting to protect religious freedom. Both supporters and skeptics of the RMA agree that the RMA’s religious freedom language has no “meaningful effect.” Below are key questions and “known unknowns” related to the RMA’s impact on faith-based nonprofits.
November 22, 2022 | At first glance, the voting requirements in a nonprofit’s bylaws may not seem an exciting topic. Most nonprofits have not seriously considered their bylaws, perhaps because they have inherited old bylaws, copied the bylaws of another company, or even originated their bylaws from a quick internet search! If any of these scenarios applies to your organization, your organizations’ bylaws may include director voting requirements not tailor-made to your preferences or the specific needs of your organization.