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Bringing a Social Equity Focus to FCCW’s Investments
The Financial Resources Ministry, the Ministry Team, and the Leadership Team have been working together over the past year to explore what changes might be made to the way that we invest the church’s funds in order to align them more closely with UCC and FCCW values. Beginning in fall 2023, the Financial Resources Ministry will implement a first step in this regard by allocating 15% of our investments to what are called Environmental, Social, Governance (ESG) funds.What is ESG?
The goal of ESG investing is to generate positive social and environmental impact alongside a financial return. Choosing to invest in ESG funds means that our investing practices will take the following factors into account:
- The environmental component might focus on a company’s impact on the environment—for example, its energy use or pollution output. It also might focus on the risks and opportunities associated with the impacts of climate change on the company, its business and its industry.
- The social component might focus on the company’s relationship with people and society—for example, issues that impact diversity and inclusion, human rights, specific faith-based issues, the health and safety of employees, customers, and consumers locally and/or globally, or whether the company invests in its community, as well as how such issues are addressed by other companies in a supply chain.
- The governance component might focus on issues such as how the company is run—for example, transparency and reporting, ethics, compliance, shareholder rights, and the composition and role of the board of directors.*
*These three descriptions were prepared by the U.S. Securities and Exchange Commission
Why now?
ESG aware investments are a compelling option for a portion of FCCW’s investable assets due to a combination of 1) inspiration by/alignment with the work of the church’s various ministries to address social and environmental justice and 2) more broad availability at lower relative costs. Investing with a view to companies’ environmental, social, and governance records and/or goals has been available for decades but has traditionally been both expensive and complex. Today, ESG aware investing is much more accessible and available via lower cost investment vehicles. Investing in ESG aware funds does not correlate with lower returns, but rather, the returns are comparable to non ESG fund investing.
How does ESG Relate to UCC and FCCW Values?
The United Church of Christ grounds its mission in these founding statements:
- Statement of Faith: God promises to all who trust in the gospel forgiveness of sins and fullness of grace, courage in the struggle for justice and peace, the presence of the Holy Spirit in trial and rejoicing, and eternal life in that kingdom which has no end.
- Vision Statement: United in Christ’s love, a just world for all
- Mission Statement: United in Spirit and inspired by God’s grace, we welcome all, love all, and seek justice for all.
- Purpose Statement: To love God with all our heart, mind, soul, and strength and our neighbor as ourselves
Our Conference — the Southern New England UCC — relies on the UCC statements above, and adds:
- A Covenant, which is simply: Living the Love and Justice of Jesus.
At FCCW, we start with the UCC Statement of Faith above, and then add:
- Purpose Statement: Our purpose is to be a Christ-centered, nurturing community; growing in faith; serving in love; welcoming all with joy.
- Covenant: We, the members of this church, covenant and bind ourselves to strive to know the will of God; to walk in the ways of the Lord, made known and to be made known; to exalt the worship of the one true God; to work and pray for the progress of knowledge, the promotion of justice, the reign of peace, and the realization of human community.
- Open and Affirming Statement: We pledge ourselves to follow Christ’s call to love one another to promote justice, to bring relief to the oppressed, and to walk humbly with our God.
You can see in all of these statements that our denomination is grounded in the work of pursuing justice, promoting peace, and supporting all members of the human family.
Given our founding values, we believe that proactively investing in ESG funds will be a natural step in advancing FCCW’s mission. The Financial Resources Ministry’s 11th Hour ESG presentation on February 12, 2023 is here.
How do our Invested Funds Work Now?
Due to the generosity of the saints who came before us and provided the church with a portion of their financial resources, and through wise stewardship of those resources, the Church is blessed with investment accounts totaling $4.89 million as of December 2022. For many years, the Church has used a portion of these funds in support of the ministries and missions of our Church. The way this works in practice is that the Church operating budget receives 5% of the funds designated as General & Jenks Endowment (averaged over the prior three years) to support the annual operating budget. In the 2023 budget year, we expect the investment accounts to provide $228,000, or 23% of the church’s total budget income.
The investment objective for the invested funds is to grow the real (inflation adjusted) value of invested funds after accounting for spending in support of annual operating needs.
To achieve our investment objectives, the investment accounts are managed with a passive indexing strategy and a “style-neutral,” well-diversified approach. The Church has adopted a target asset allocation for typical investment environments as follows: approximately 65% in equities (stocks), 30% in fixed income (bond) vehicles and 5% in cash. By indexing, the invested funds seek to achieve long-term total returns (income plus appreciation) approximately equivalent to a weighted average of the relevant benchmark indexes while incurring low costs.
The annual investment performance of the accounts was -6.8%, 5.5% and 6.7% over the past one, five, and 10-year periods, respectively, as of March 2023. The investment performance is in line with the performance of the relevant market indexes weighted to the target asset allocation, consistent with the investment accounts investment strategy.
The Financial Resources Ministry administers these investment accounts, including rebalancing the accounts to adhere to the target asset allocation, if necessary.
How Will the ESG Aware Approach Work?
The FRM will:
- consult with FCCW’s investment manager and others to select funds
- implement the 15% investment in ESG funds this fall, likely by transferring a portion of the church’s current equity investments into relatively equivalent ESG-aware investment options
- monitor performance and impact
- report out to the Leadership Team as appropriate
What won’t change:
- our desire to use lower-cost investment options for all church investable funds
- target asset allocation (65% equities/30% bonds/5% cash)
- FCCW’s investment policy guidelines (formal structure used to guide investments)
- our investment account and the administration of the account itself
What Criteria Will be Used to Choose the Funds?
The FRM will use the following criteria to guide its actions:
- decide on funds that are ESG aware (in order to address our values) and readily available via our current investment account
- invest in funds with annual expense ratios no greater than 0.15% (in order to minimize fees)
- choose public equity funds that are index level investments such as S&P 500 and Morningstar U.S. Sustainability Leaders (in order to mitigate risk)
How Will We Review Impact and Financial Performance?
The FRM will:
- review the investments and performance in one year with the idea in mind of increasing the % of investments that align with our values over time
- make decisions about appropriate benchmarks for FCCW’s ESG aware vestments
- work closely with the Leadership Team and the Ministry Team going forward regarding financial stewardship and FCCW’s purpose
If you have questions about FCCW’s ESG aware framework or if you’re interested in supporting FCCW’s ESG aware initiatives specifically, please speak with Treasurer Janet Hall or any member of the FRM.
With gratitude,
The Leadership Team, Ministry Team, and Financial Resources Ministry
Tags: ESG
