Right now, people around the world are celebrating the fifth anniversary of the publication of “Laudato Si’ Of The Holy Father Francis On Care For Our Common Home.” Known simply as the Laudato Si, this groundbreaking, 180-page papal encyclical calls on us to act with urgency to stop the relentless damage being done to our planet and all living things. Pope Francis’s passionate and compelling argument for a better world has won admiration and support from people around the world, of all faiths and backgrounds, young and old.
The encyclical’s insights and guidance have been particularly valuable to Catholics who strive to invest their money in ways that align with their beliefs and their values, particularly protection of the environment.
Before the Laudato Si, these investors sought inspiration from the Socially Responsible Investment Guidelines of the U.S. Conference of Catholic Bishops (USCCB). Those guidelines, published in 2003, called for investor advocacy to prompt greater ecological preservation on the part of corporations. However, there was no specific mention of how to handle investments in fossil fuels, which today represent a core issue for many investors.
In the 2015 encyclical, however, fossil fuels finally found their way into the spotlight. Early in the Laudato Si, Pope Francis singles out these energy sources as he urges concerted global action to reduce carbon dioxide and other harmful emissions:
“There is an urgent need to develop policies so that, in the next few years, the emission of carbon dioxide and other highly polluting gases can be drastically reduced, for example, substituting for fossil fuels and developing sources of renewable energy.” (Para. 26)
Catholic investors who read only this statement might reasonably conclude that a complete divestiture of fossil fuels stocks is in order. After all, the Holy Father is calling for a “drastic reduction” of harmful emissions, while scientists have demonstrated clear connections between global climate change and our continued burning of fossil fuels. However, later in the encyclical, Pope Francis highlights one of the conundrums investors face as they take on the fossil-fuel question:
“We know that technology based on the use of highly polluting fossil fuels – especially coal, but also oil and, to a lesser degree, gas – needs to be progressively replaced without delay. Until greater progress is made in developing widely accessible sources of renewable energy, it is legitimate to choose the less harmful alternative or to find short-term solutions. But the international community has still not reached adequate agreements about the responsibility for paying the costs of this energy transition.” (Para. 165)
In other words, we must assess the fossil fuels question with an understanding of the vast differences in energy consumption globally. While renewable options – and investment opportunities – might abound across highly developed nations, they are nearly non-existing in other nations, where fossil fuels are essential for all the basics of life, from cooking and heat, to health care and education.
So, what might Catholic investors glean from the encyclical’s call? It’s that a transition away from fossil fuels is imperative and we all must act, although not necessarily in lockstep. As we explore potential responses with Catholic investors – from large institutions to individuals – we’ve seen three key strategies emerge:
- Immediate divestment of fossil fuel stocks – Some have taken this step already, while others are in process. Although our investment solutions currently have an immaterial exposure to fossil fuels, we plan to remove this exposure in the near future.
- Sequenced transition to renewable energy – Certain investors have sought to maintain their exposure to the energy sector by investing in companies or private funds that are advancing alternatives, a strategy our organization is pursuing as well.
- Gradual divestment of fossil fuel stocks – Some are gradually thinning out their holdings by applying filters for company performance across environmental, social, governance, fair labor and other factors. Poor performers are thus the first to go.
Whether we are Catholic investors or simply citizens of the world who care about our planet’s future, Pope Francis’s Laudato Si remains a powerful source of inspiration and pragmatism. It falls to all of us to continue our progress toward the encyclical’s challenging goals, and to invest in ways that make sense for a world facing its most important challenge.
Tom Lanctot is Chief Executive Officer and Jeremy Taylor, CFA is Investor Relations Director of Catholic Investment Services. This Boston-based non-profit SEC registered investment advisor seeks to deliver strong investment returns aligned with Catholic principles so Catholic organizations can make a bigger impact in their communities.