Why the Zero Tolerance Screening Policy is the Best Option for Catholics When

Choosing to Morally Invest.

A Senior Thesis by

Dominic Young
 Table of Contents

Introduction 1-3

Choosing to Not Screen Investments 3

Choosing to Morally Invest 4-9

Choosing to Morally Invest Using the Zero Tolerance Screening Policy 9-13

Conclusion 13-14
 For those who choose to apply their morals and faith to their investments, it is actually

much more complex than first thought. There are many different options, investment strategies,

and screening policies which can affect an individual much more than they think. There is far

more in choosing a policy than just reading a company or stock’s webpage. When it comes down

to it there are many factors which could actually make a company or stock morally wrong or

evil. For example AT&T may seem to be a well managed and morally good company whereas

they actually have a division which distributes pornography. For some investors this may not be

a deal breaker, however many others choose to have nothing to do with any companies or stocks

which deal with pornography. This is the same concept for many other issues such as abortion,

embryonic stem cell research, and in some cases alcohol, tobacco, and casinos. Each investor has

their own morals in mind when choosing to morally invest, however while some may be lax

about it others take it to the very extreme in order to be as faith driven as possible and to be in as

much accordance with the church as possible. For Catholic investors the only real form of

reference or set of rules which they can refer to is the United States Conference of Catholic

Bishop’s Guidelines or USCCB’s Guidelines. While it may seem a clear cut and strict reference

or rulebook the USCCB’s Guidelines are actually rather loosely written and essentially left to

interpretation based on exactly how “moral” the investor really wants to be. Rather than saying a

moral investor is strictly prohibited from investing or supporting any company or stock which

supports pornography the USCCB’s Guidelines reads, “The USCCB will not invest in a

company that derives a significant portion of its revenues from products or services intended

exclusively to appeal to a prurient interest in sex or to incite sexual excitement.” (“Socially

Responsible”)

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While it may seem that the USCCB’s guidelines are prohibiting pornography they are actually

leaving room for interpretation in that they say “derives a significant portion of its revenues”. By

saying this they allow the moral investor to decide for themselves how much is too much. This is

the case in many sections of the USCCB’s Guidelines and there is a lot of controversy pertaining

to the issue of whether or not the guidelines should be revised. Whether the moral investor looks

at the loosely written guidelines as a good thing financially or believes the USCCB’s guidelines

should be more concrete in their statements, they are still left with the decision of choosing a

screening policy and implementing it in order to create a portfolio.

Many Catholics follow a standard investment approach and do not implement any type of

screen to their portfolio. On the other hand many Catholics believe it to be immoral to not screen

their investments and implement a percent of revenue screen. There are also Catholics who

implement the zero tolerance screening policy in which they do not invest in any companies

which have any percentage of revenue coming from any intrinsic evils such as pornography or

abortifacients. In light of basic Catholic Social Teaching, when it comes to investing as a

member of the Catholic Church, the zero tolerance policy for investing is the most socially

responsible and the best option for Catholic investors. While it may cost Catholics a few dollars

depending on the investors situation it also may make him a few more dollars while at the same

time protecting his values to the greatest extent. The argument some may make is that it doesn’t

matter to what extent you screen as long as its in accordance with the USCCB’s guidelines, the

screening processes are then equally moral. While this may be true leaving any possible room for

the spread of evil is something that the Catholic Church would be against, so why risk your

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morals when there are plenty of other morally and ethically safe companies and stocks to help

you make financial gains.

For many Catholics across the world the simple answer to moral investing is no. Many

Catholics who choose to invest simply decide to keep their faith and their work life separate. It is

much easier on the mind this way in that they are able to forget that they are supporting

abortifacient manufacturers and such and they are able to just invest in what they expect to be

profitable. This is a conscience heavy method for those who have one but in the end it’s what

makes them “happy”. For these people making financial gains tops the list of importance while

one’s faith and morals are forced to take the back seat in return.

Even though people may not choose to morally invest when investing, investment

management of our worldly resources can actually be a moral deed. Choosing to invest takes

away our need for the government to support us and allows people to provide for themselves.

Investing also makes charity possible in different areas from the positive influence of effective

action. Although moral responsibilities such as investing are usually not mentioned in one’s

everyday journey of faith or in homilies, it is still mentioned in the form of scriptural warrants

and encyclicals such as Caritas in Veritate. (Schwartz and Koshelnyk, xiii).

“Investing is a critical component of financial management. And it is a distinctly moral

act, carrying with it the obligations productivity and the exercise of good judgement” (Schwartz

and Koshelnyk, xiv) Although investing may be a moral act there are actions we must take

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within in it to properly fulfill its full potential of helping worldly resources be used for the total

good. What this means is in terms of morally benefitting our society, choosing to invest isn’t

enough. Investors must be socially conscious about what they choose to invest in because

choosing to invest in a morally questionable company may very well result in an end product

which produces more evil than good. In some cases the choice to invest in certain companies

may be so out of line with Church teaching that it may no longer be a moral act at all. Investing

should be a matter of participating in the capital markets in a purposeful and ethical way that can

achieve socially good investment objectives while not entangling you in morally questionable

business practices. This means that in order to achieve social good through investing, companies

stock methods must be taken into account before blindly choosing to invest in them based on

their financial return rate. (Schwartz and Koshelnyk, xv)

Even though companies and stocks which contradict core Christian values may yield a

good return rate and financial security there are plenty of other morally responsible options

which can in fact produce the same end product. As important as making financial gains and

benefiting the economy are in investing, human and moral factors must also be considered which

are equally important for the life of a business. Controversy about whether or not moral investing

really does yield the same return rates can be combated with facts and statistics supporting the

case of moral investing. While many people have realized this and joined the socially responsible

movement, they are still missing key factors which can benefit society in the greatest way. Many

people have just taken socially responsible investing to mean being environmentally sensitive,

this has become increasingly common today. (Beabout and

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Schmiesing, 68) While it is extremely important to keep the environment in mind when

analyzing companies and stocks it is not what makes socially responsible investors what they

are. To invest with total social responsibility requires knowledge of matters such as life, human

degradation, and familial destruction. These are the issues which must be kept in mind and

screened for in companies and stocks for an investor to really be considered socially responsible.

In the eyes of the Catholic Church these are the values that are most at risk when one chooses to

invest without any type of background check or screening process. To simply invest without

being socially responsible in this way and thinking you are in accordance with Church teaching

is wrong and in the case of many individuals ignorant.

For those who choose to invest under the USCCB’s guidelines it is both a moral and a

conscious decision. To prioritize one’s faith over finances takes a certain willpower and

conscience that cares about something greater than oneself. Pope John Paul II has stated in

Centesimus Annus (a 1991 encyclical) that the choice to invest in one area rather than another is

both “a moral and cultural choice.” This means if we wish to benefit society in not only a faith

conscious way but also a culturally conscious way, the option to morally invest is not an option.

While investing morally and ethically may not be the first thing on an investor’s mind or even a

Church official’s mind, it is still something which remains highly encouraged. A major advocate

for socially responsible investing today is Sister Nicole Reille. Sister Nicole is a French Catholic

nun who runs a socially responsible investing campaign in attempt to prompt those around her

and even those of the Vatican to monitor their investment practices. Sister Nicole has said that

they should “try and prove their ethical behavior.” meaning in addition to managing their funds

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they should also be managing their faith. (Gregg, 1) Although certain companies and stocks may

be labeled ethical or socially responsible, this may not be a reflection of Catholic principles and

teachings. It is the investor’s responsibility to be educated and conscious about the companies

and stocks they choose to work with and support. Without a certain extent of research and

screening, companies and stocks who are harmful to the moral well being of society may very

well fly under the radar. If investment firms are not careful in their screening they may not be

creating morally sound portfolios for their clients which in turn results in the client’s support of

companies which are in fact not ethical. Like the United States Conference of Catholic Bishops,

Sister Nicole has also worked to produce guidelines which are in favor of Catholic morals

instead of just political correctness. (Gregg, 2) With guidelines which help to rule out morally

unsound companies, investors have a frame of reference which they can refer to in deciding how

to put together their portfolio.

When first choosing to morally invest the process of analyzing policy issues and

investment objectives can be very unclear. Neither the Catholic nor Christian Church is

completely specific in suggesting exactly how to analyze policies and choose achievable

objectives. This means a moral conscience as well as economic analysis must be used in

choosing a screening process and informing Christians on what is ultimately “acceptable”. A

process this intense may lead to doubting the financial upsides and many economists even do not

agree with such rigor. However there must be proper steps taken in order to achieve a proper

analysis which takes into account both the “seen” and “unseen” effects a company may have on

society. Without these proper steps investors can be responsible for the support and growth of an

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intrinsic evil that a company may produce. It is not and will never be acceptable for Christians to

claim they morally and socially responsibly invest without proper analysis of economic

principles which affect their policy statements. (Booth, 27-29)

For many Christians who have chosen to screen their investments and morally invest in

their minds, Christian Brothers Investment Services offers investment solutions for many

Catholic institutions and consultants. “Our distinctive approach to investment screening, rooted

in Catholic beliefs and incorporating USCCB investment guidelines, helps Catholic institutions

avoid benefiting from company activities that violate Church teachings.” (Christian Brothers

Investment Services) CBIS is an investment firm which recognizes the primary concerns of the

Catholic church. CBIS’s screening process is one which takes Catholic moral theology into

account in order to identify companies and stocks which may violate Catholic church teachings.

“We develop the criteria for our Catholic investing screens and active ownership efforts by

examining Church teachings and United States Conference of Catholic Bishops (USCCB)

investment guidelines, conducting research and surveys (to help identify the consensus views of

Catholic institutional investors) and assessing the potential financial impact of our program.”

(Christian Brothers Investment Services) For those who end up investing with CBIS the fact that

they screen in accordance with the USCCB’s guidelines is a very good thing. This means that

they are properly morally investing and taking the right steps in creating a portfolio which

reflects basic church teaching. CBIS takes four steps before the portfolio can be labeled a CBIS

CRI Portfolio. The manager’s unscreened portfolio is first taken. Then it is screened for any

restricted companies pertaining to life ethics, violence, tobacco, and pornography. These

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companies are then removed and replaced with screened companies and are reweighed across

unrestricted names. This is a lengthy process which in turn yields not only good return rates but

also is socially responsible. (Christian Brothers Investment Services)

There are many other investing institutions which have recognized the good of socially

responsible investing and have in turn started to participate for both its social good and financial

upsides. “The biennial Report on US Sustainable, Responsible and Impact Investing Trends from

US SIF, the trade organization for the SRI industry, shows a continuation of the rapid adoption

of ESG criteria among mainstream money managers that was noted in the previous Trends

Report. In the last two years, the value of portfolios that include consideration of ESG factors has

mushroomed by 69%, to over 8 trillion dollars, under the management of 777 money managers

and institutional investors, and over 1000 community investing financial institutions. While the

number of more active money managers who filed shareholder resolutions did not rise

appreciably (225 this year), it appears that some larger players are joining in this crucial element

of SRI, as their portfolios total over 2.5 trillion dollars, a nearly 50% increase since 2014.”

(Cummings) This proves that the practice of socially responsible investing is rapidly expanding,

and for good reason. Because the value of socially responsible portfolios has grown to such an

extent it would almost be unwise to not consider social factors when creating or choosing a

portfolio. In choosing to not work with morally wrong companies, investors over time can affect

a company’s income and hopefully persuade them to change policy. As company’s see their

clientele investing elsewhere the effects will gradually have some leeway on what needs to

change.

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 Although CBIS follows the USCCB’s guidelines which are the Catholic Church’s only

official set of rules in terms of investing, they do not however screen to the fullest extent. CBIS

uses a percent of revenue screen which means they apply moral screening to determine what

percent of revenue a company obtains from an objectionable practice. Although this may not be

the case for CBIS, an example of a percent of revenue would be if a company receives less than

10% of its revenue from pornography, then it is allowed to be in the portfolio. Another form of

investment practice which is in accordance with the USCCB’s guidelines is activist ownership.

This is investing in a company in hopes of changing its business activity and creating

shareholder resolutions. (The St. Charles Group at Morgan Stanley, 3) Although this process

may offer success in the long run, it is still cooperating and supporting business activity which is

socially harmful and against church teaching.

While these investment practices may be completely in line with the USCCB’s

guidelines, they are still however not the most socially responsible way to invest. One may ask

however if investing using a percent of revenue screen or active ownership is acceptable to the

USCCB why must any further steps be taken considering there is already a financial upside

which is socially responsible. For investors who's finances take precedence over their faith these

practices may suit them better. However for those who strive to live their faith in every aspect of

their life and wish to protect their morals to the fullest extent, the zero tolerance policy is the best

option.

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 It can be very difficult for Catholics to determine to what extent to screen just as it can be

difficult to determine how much is the appropriate amount to donate to the church. When it

comes down to matters like these, those who wish to truly know the answer will examine their

faith on a much deeper level in order to find a solution. When determining to what extent to

screen when both sides of the spectrum are acceptable in the eyes of the Catholic Church, the

concept of probabilism must be taken into account. “Probabilism is the moral system which

holds that, when there is question solely of the lawfulness or unlawfulness of an action, it is

permissible to follow a solidly probable opinion in favour of liberty even though the opposing

view is more probable.” (New Advent) This definition confirms that even though a percent of

revenue screen is not as probable as a zero tolerance screen, it is still permissible and in some

rare cases encouraged. When there is no law prohibiting an action there is no need to abstain

from that action. However there is also the theory of Probabiliorism which states that it is not

lawful to act on the less safe opinion unless it is more probable than the safe opinion. (New

Advent) According to this theory, in order for investment practices such as a percent of revenue

screen to be justified, the zero tolerance policy in most cases would have to yield lesser return

rates than that of a percent of revenue screen. This is however not the case for it has been proven

that companies and stocks which pass the zero tolerance screen in most cases do not yield lesser

returns and are more socially responsible.

Even though choosing to morally invest is the first step, it’s not the only step. Good

intention or good results do not mean that the action itself is good. In Catholic morality the ability

to exercise our freewill is essential. Freedom is at the root of all choices. One must take

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all the proper measures in choosing how to invest and what to invest in. The fact that one’s actions

affect one’s character is a feature of Christian ethics. To be able to grow in the faith we must

continue to grow in our acts and in our everyday lives. Knowing what is good and true requires a

practical judgement as the best means to achieve good. If one fails to exercise freedom in the right

way, oneself and one’s conscience are harmed as well as other’s consciences. Knowledge is power.

When one is making decisions the knowledge of what he is deciding and its various elements is a

powerful tool. In order for someone to make a moral action they must be knowledgable and apply

Catholic teaching in every aspect. Cutting corners in any way could lead to an action which may

seem morally right on the outside but in reality is morally wrong. This is why companies in support

of any intrinsic evil must be avoided at all costs even if it is only a percentage of their revenue.

Although a morally questionable company may offer a slightly better financial upside than one

which is free of any morally questionable practices, as Catholics it is not worth the trouble of

possibly putting your faith at risk. In the long run it becomes evident that good stewardship and

the proper exercise of freedom have great moral bounds. (Richard)

For those Catholics who put their faith and morals above everything else in everyday life,

the St. Charles Group at Morgan Stanley is an excellent choice which implements the zero

tolerance screening policy. The St. Charles Group has developed an investment screening

methodology which excludes any companies involved with morally questionable practices. Not

only does the St. Charles Group abide by the USCCB’s guidelines they also take into account all

Church teachings on morality and apply them to their screening process. “The St. Charles Group

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investment process pursues the absolute exclusion of publically traded U.S. companies and ADRs2

that are involved in the production of the following goods or services.” (The St. Charles Group at

Morgan Stanley, 1) These goods and services include all aspects of abortion, contraceptives, stem

cell research, and pornography. Although the USCCB’s guidelines do not strictly prohibit arms

and weapon manufacturing the St. Charles Group tries to avoid major manufacturers in order to

try and protect and preserve human life.

Not only does the St. Charles Group focus on the screening process they also use a ratings

process which allows them to evaluate different corporate practices. Companies are rated based on

their participation in different areas. The process’s main purpose is to help avoid companies who

have poor ratings in areas like human dignity, economic justice, protecting the environment, and

corporate responsibility. This process also identifies companies falling in the bottom five percent

of human rights ratings, racial discrimination ratings, gender discrimination ratings, labor

standards ratings, and environmental ratings.

The St. Charles Group developed their process in order to establish a standard before

making investment decisions. Before participating in a morally questionable activity the St.

Charles Group asks themselves a question which every investment firm should ask themselves,

“do we have to own this particular company or can the desired end be achieved by investing in a

different company?” (St. Charles Group at Morgan Stanley, 3) When one asks themselves this

question they are forced to make a conscious choice in which one’s faith takes priority over one’s

investments. In the end there are always alternative routes which can be taken to achieve the

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same financial means, however one must put the effort in to find them. Having worked with Clergy

members, Professors of Moral Theology, Professors of Catholic Study and Finance and Investment

Management Professionals, the St. Charles Group has developed a process designed for Catholic

investors which provides a complete and practical application of Catholic values. (St. Charles

Group at Morgan Stanley, 4) Like many other “morally right” investment firms the St. Charles

Group acts in accordance with the USCCB’s guidelines, however what makes them different and

the best choice for Catholic investors is their more complete analysis of companies which in turn

results in more socially responsible investing.

In conclusion, in the modern world the Church and its people cannot afford to not invest in

financial markets which means they are forced to choose an investment strategy. The choosing of

this strategy is one which not only affects the investor himself but also the lives of others and the

wellbeing of society. Those responsible for choosing investment strategies must take into account

a variety of factors including its return rates and its moral values. To invest well in both senses

however means more than just paying attention to the return rates. When choosing to morally

invest one must decide whether it is financial gain or one’s faith they are putting first. For true

Catholics the answer is faith. What this means is investing must be looked as a part of everyday

life in which we can apply our faith. In order to properly apply the faith to investing we must take

all precautions when choosing a screening process and later on which companies or stocks have

no morally questionable practices. To avoid investing in any companies which may even possibly

be morally questionable is the right mindset because no financial upside is worth a moral downside.

The screening process which is on par with this mindset is the zero tolerance

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screening policy. The zero tolerance screening policy is the best option for Catholics when

choosing to morally invest because it provides room for financial growth while never putting one’s

faith or morals at risk.

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