Ethical Investing at Risk
Why Catholics Should Be Concerned
Financial investments can provide a sense of security—many individuals and families, for example, rely on investments for their retirement accounts. Individuals and organizations with the available funds can also make use of investments to grow their wealth for future use. Companies in turn rely on these investments as a source of capital for funding new ventures.
Financial investment is more than just an engine for economic growth or a source of security, however. As Pope John Paul II wrote in his 1991 social encyclical Centesimus Annus, “[T]he decision to invest in one place rather than another, in one productive sector rather than another, is always a moral and cultural choice” (#36, emphasis in original). Even if the pursuit of financial reward is an essential consideration when investing, it’s also necessary to consider ethical questions such as whether the particular enterprise to be invested in is truly contributing to the common good, whether its activities cause harm to consumers or the natural environment, and how the enterprise treats its workers.
The United States Conference of Catholic Bishops (USCCB) regularly publishes ethical guidelines for investing to be used by institutions affiliated with the Catholic Church, but which can also be used by conscientious Catholic individuals and organizations. The most recent version of these guidelines was published in 2021. The guidelines state, for example, that Catholic institutions should not invest in companies that engage in research on human embryos or tissues derived from abortions, and similarly that they should not invest in companies that manufacture firearms other than those used for hunting or for military and law enforcement organizations. The guidelines also say that, as shareholders, Catholic institutions should work with corporations to ensure that the human rights of workers are respected throughout the supply chain and should divest from companies whose activities persistently violate human rights. In the same way, the USCCB recommends using shareholder pressure to convince companies “to establish greenhouse gas emission reduction goals, provide disclosure around low-carbon planning, and mitigate climate change,” and it suggests that divestment from these companies can be a last resort if these other measures fail to achieve the desired outcomes. Two years ago, I described how the Catholic Theological Society of America (CTSA), following these guidelines, decided to divest from the fossil fuel industry, a move that has also been made by a number of Catholic universities.
These ethical considerations regarding investments are by no means exclusive to Catholic institutions. In the 1980s and 1990s, some investment firms began creating funds centered around environmental and human rights considerations, and by the 2000s, this practice—which came to be known as environmental, social, and governance (ESG) investing—had become mainstream, even if not universally practiced. A number of smaller investment firms focusing exclusively on ESG funds now exist, and larger investment firms like BlackRock, Vanguard, and Morgan Stanley offer ESG-based options for clients.
In 2021, the Texas state legislature passed a law targeting ESG investing, and in particular investment firms that “boycott energy companies,” which the law defines as:
[W]ithout an ordinary business purpose, refusing to deal with, terminating business activities with, or otherwise taking any action that is intended to penalize, inflict economic harm on, or limit commercial relations with a company because the company:
(A) engages in the exploration, production, utilization, transportation, sale, or manufacturing of fossil fuel-based energy and does not commit or pledge to meet environmental standards beyond applicable federal and state law; or
(B) does business with a company described by Paragraph (A).
The law prohibits the state’s pension fund and other state entities of making an investment of $100,000 or more in such a firm. The prohibition is based in climate change skepticism and the influence of the fossil fuel industry in Texas, but its supporters also appealed to free market principles, suggesting that ESG guidelines impose on companies considerations that conflict with a company’s fiduciary responsibility to its shareholders.
Earlier this month, however, a federal court ruled that the Texas law is unconstitutional, violating both the First and Fourteenth Amendments of the US Constitution, and that it is “facially overbroad” and “unconstitutionally vague.” The decision came after the American Sustainable Business Council, an association of over 2,000 companies committed to sustainable business practices, brought suit against the state of Texas in 2024.
