James K.A. Smith has written extensively on how our hearts are—often unintentionally—formed by our habits. What investing habits are we participating in that may be subtly shaping our view of money?
The moral insight of this statement is simple: losing sight of people, abstracting reality to numbers, sits at the essence of finance, and this focus on numbers impairs moral vision.
Yes, there is a profusion of talk about ethics and investing evident in the emergent movements of ESG (environmental, social, governance), CSR (corporate social responsibility), sustainable, impact, and even faith-based investing. But, while ethics certainly informs some investment decisions, these are ripples on the surface of the ethics of finance and the global investment pool. The vast depths of investment—hundreds of trillions of dollars—largely and deliberately elude moral direction.
Last spring, I took this perspective on finance along with 15 years of experience in the trenches of mergers and acquisitions on a month-long trip to Oxford to research the ethics of finance and investing.
On this trip, I also carried a countervailing hope that finance can see people within the numbers. A decade back, I was conducting due diligence for a leveraged buyout. It was an attractive deal taking assets from a distressed seller. The promise of big returns for our client was palpable. Momentum was considerable. But the numbers did not add up and the books were a mess. One did the deal on faith or walked away. Frustrated and exhausted, my team got on a call with our client, managers of an infrastructure fund. I had the unenviable task of sharing that completing diligence was not possible. Our substantial fees would be a sunk cost. My client’s response surprised me: “Ben, we are investing peoples’ pension money. I’m responsible to them. We won’t do the deal if the data isn’t available to complete diligence. Thank you.” Many of my clients would choose to plow ahead, ‘get creative’ with the diligence, to ‘win’ the auction, get the assets under management and the associated fees, and to avoid the embarrassment of a busted deal with high expenses. But, this individual put the interests of others before his own. This response and others like it give me hope that the moral vision of finance is substantial and can be restored.
Two weeks into my trip, things took a troubling turn. A friend suggested I apply my findings to my own finances. What would I learn about finance if I compared my retirement and other savings to my charitable giving? My financial investments, it turned out, reduced people to numbers. The problem was not only “out there,” but “in here.” This had eluded my attention because my core beliefs about finance are deeply entrenched, more or less out of sight and mind. My friend had kindly forced me to consider the people behind the numbers. I saw that while I care deeply about ethics generally, in my investing these were largely set aside. In what follows, I detail my personal journey of discovery about this schism in my moral life.
My personal story highlights a broader issue, one many of us face personally and all of us face as a society. It is captured in the heated arguments over the proper role of finance and investing that play out in the financial press and popular culture. Should (my) investments narrowly focus on generating returns and profits? Or, should finance have broader goals in view? My inner schism is reflected in society’s divided approach, namely that its morals are not reflected in its investing.
As I began to dwell on this issue, I saw that the elusiveness of my own beliefs about finance and investing was due to a peculiar hiddenness. Even as modern investment theory’s commitment to return and risk as the nearly exclusive criteria is an accepted part of investing common sense, its moral implications are “hidden in plain sight” or, as we will see, “Too often, what everyone believes, nobody knows.”
Clearly, a deeper understanding was needed. Yes, the abstraction of finance is critical to its work—it is a strength. But what happens when this abstraction causes moral blindness? Further, why is finance so susceptible to this particular moral peril? There was little possibility of finding a way forward when I had not done the hard work of diagnosing the problem. Surface-level analysis and the existing terms of debate would be insufficient here.
This diagnostic work revealed that the moral malignancy of finance is multiform. This two-part article engages with only one malforming facet, the Separation Thesis, the idea that “the numbers” can be viewed without regard to “the people” behind them. I learned this notion was at the core of my internal division.
Part I frames my introspective journey with a definition of the calling of finance and investing. It then explores the Separation Thesis through a review of the varied moral rationales at work in my financial and philanthropic investments. Part II further defines the Separation Thesis and suggests a path forward. The hope here is to create space for new ideas, motives, and actions within the existing conversation of directing one’s investments to moral ends, especially for Christians.
I started my investigation by looking at the calling of finance. Augustine of Hippo wrote long ago that only good is inherent in God’s creation—sin and darkness are merely parasitic, deformations of original good. It follows, then, that any critical ethical analysis of finance must be grounded by a grasp of the essential good that is being distorted.
Finance, as a field of work, is first a response to God. As a part of the created realm of work, finance and investing have their own integrity, purpose, and logic, but they also share in a general calling applicable to all work. This created realm of work is being renewed in Jesus and, as Colossians 1:16 makes clear, all things are ordered now to Christ.
This capital, entrusted to individuals and to finance, is the shared inheritance of humanity and represents the accumulated creation of value through our forebears’ work, thrift, creative differentiation, investments, and marshalling of the earth’s given abundance.
This stewardship of finance involves allocation of capital to the best and highest uses, those investments that will best further societal flourishing and justice. These investments should support the engagement and unfolding of human giftedness and capacities and the maintenance and real economic growth of the capital invested.
The profession of finance properly carries out this calling as an intermediary, a servant, by bringing savers and builders of various things—ventures, offices, homes, educations, etc.—together to amass resources to facilitate scale and duration in public and private investment and by enabling flows of value to facilitate trading. To do this well, finance must refine its moral culture, processes, markets, modes of analysis, and ownership structures to conduct these tasks of finance efficiently and truthfully, orienting them in total toward their proper ends.
This work of finance has a thoroughgoing moral frame. Every aspect of its work, including investing, despite its increasingly technical nature, is ethically contained within its calling and the moral frame common to all human activity. Capital, for example, like all parts of human culture, has an inescapable moral aspect and so can be put to either immoral or moral ends—in its omissions as much as its commissions—but it cannot be neutral. Capital, like work, like life, is first oriented to God and through God to humanity and the earth.
To be fair, while the current ethos of the industry deviates from the true calling of finance in significant ways, it does not do so entirely.
Finance has done and continues to do much good.
However, the root causes of the moral deformity of finance should be of concern to us all. In ways often not noted, most professional and non-professional investors participate in, are marked by, and sustain this deformity.
The Separation Thesis mentioned above, which posits that finance operates in a world of facts and rationality that does not require moral direction (outside of laws and regulations
Here, I invite you to pause and conduct a brief audit exercise. Please list your investments, noting the cash, bonds, real estate, and equities you hold. There is no need for monetary values, but including these might make the exercise more meaningful. Next to each category, add a sentence detailing its rationale. Why this investment and this amount?
Many will not have all this information top of mind; so, for purposes of illustration, let us consider my own investments.
Here is my list along with the corresponding rationales:
My investment approach is simple, focused exclusively on return, risk, and convenience. To explore a different approach to investing, let’s compose a second list detailing our philanthropic investments, again noting rationales. I call these “investments” rather than giving because in them I am most certainly seeking a return, albeit a non-financial one, namely a furthering and enriching of the good work the organization is doing.
Below is a list of my philanthropic investments from 2022:
In constructing your own list or reviewing mine, what emotions or thoughts arose? What differences did you notice in the two approaches to investing? Moral discernment, to be sure, involves listening to these hunches and the resonances with Scripture and convictions that arise. I leave you with this important internal dialogue until next time.
Part II of this article further defines the Separation Thesis, explores how the allocation of my personal financial and philanthropic investments (and perhaps yours) illustrate its logic, and considers a way forward.
This communication is provided for informational purposes only and was made possible with the financial support of Eventide Asset Management, LLC (“Eventide”), an investment adviser. Eventide Center for Faith and Investing is an educational initiative of Eventide. Information contained herein has been obtained from third-party sources believed to be reliable.