New investment strategy focuses on diversity, equity and inclusion

March 24, 2021 by Robyn Davis Sekula

New Covenant Trust Company will start utilizing new positive and negative screening tools to assist investors who want their investments to align with their values beginning April 1.  These tools will allow New Covenant Trust Company to target investment in companies with a strong record of diversity, equity and inclusion.

New Covenant Trust Company is a subsidiary of the Presbyterian Foundation.

Ten percent of New Covenant Trust Company’s fees earned from this initiative will go to the Matthew 25 initiative of the Presbyterian Church (U.S.A.).

Greg Rousos, President of New Covenant Trust Company, explained that the new screening capabilities are similar to other values based investment strategies that NCTC has developed such as the fossil fuel free strategy. These strategies use an algorithm to find companies that are a fit and allocate capital to best reflect the benchmark index.

“The Foundation’s mission is to gather, manage and disburse assets for Christ’s mission in the PC(USA), and beyond,” Rousos says. “New Covenant Trust Company lives out this mission by providing resources that allow denominational entities to faithfully invest in a manner that represents the denomination’s values and, as a subsidiary of the Presbyterian Foundation, supports the Foundation’s mission.”

Rousos, along with James Carey, Director of Investment & Portfolio Management Services of New Covenant Trust Company, gave a presentation about the new capabilities and methodology at the Mission Responsibility Through Investment winter meeting, held virtually on Monday, March 16.

How it works

The diversity, equity and inclusion strategy is a positive screen for companies that are part of the Russell 3000, a Wall Street Index that tracks 3,000 U.S. companies. The algorithm will measure companies on the basis of the diversity of their management, their governing board, measures to promote equal opportunities and non-discrimination across their workforce, supply chain, climate strategy and community involvement.

The top 10 percent of companies that do well on these measures are eligible for investment. The companies must also be fully compliant to the Mission Responsibility through Investment guidelines approved by the General Assembly, which prohibit investments in for-profit prisons, weapons manufacturers, gaming, alcohol and tobacco.

The 150-stock portfolio is sampled and market cap weighted, with a sector profile matching that of its index. Each company will be analyzed for strong diversity, equity and inclusion performance annually.

Rousos says that the goal isn’t perfection; he knows that occasionally, a company that was doing well with diversity, equity and inclusion goals will fall short. That’s when NCTC can turn to Mission Responsibility through Investment and ask if staff would like to engage with the company to try to challenge the company to do better. If that’s not desired, NCTC can decide to sell the stock and remove it from the index.

“It’s important for us to use the tools that we have available to us to demand better from corporations,” Rousos says. “It is our hope that companies would see being part included in our initiative as a positive, and strive to meet the qualifications so they can remain in it.”

Idea is received well

Several Mid-Council agencies have expressed an interest in the ability to invest with such a strategy, particularly as they examine wealth and racial disparities in their own communities and seek ways to remedy that.

Jim Koon, Director of Finance for the Synod of Lakes and Prairies, shared that General Assembly Co-moderators, Elona Street-Stewart and Gregory Bentley introduced an initiative earlier this month  called Restorative Actions. The new program invites predominantly white churches and individuals to surrender part of their wealth to new funds that will support both African-American and indigenous populations. The concept is to return some ill-gotten gains to where they belong. “Indeed, if it were not for system-wide inequities that have long favored white Americans (not all, but in aggregate and on average), their annual earnings would be 5% less and the wealth they hold would be 15% less,” the website for the Restorative Justice initiative reads. “These differences reflect the benefits of privilege and the tacit acceptance or acquiescence to receiving disproportionately from the nation’s prosperity.”

The diversity, equity and inclusion positive screening methodology at NCTC is exactly what is needed now, Koon says. “The time is so right for what NCTC is doing,” Koon says.

Gathering the funds and investing them using the diversity, equity and inclusion methodology would allow funds gathered through Restorative Actions  to not only be disbursed at the direction of African-American and indigenous community leaders, but it would allow their investment to seek  companies that are promoting diversity and racial equity. “From the outset, we realized this type of program will be much more powerful if we are hitting the objectives from all angles,” Koon says.

If you’d like to know more about the diversity, equity and inclusion strategy or other strategies available  at New Covenant Trust Company, send an email to James Carey at james.carey@presbyterianfoundation.org.

Robyn Davis Sekula is Vice President of Communications and Marketing for the Presbyterian Foundation. You can reach her at robyn.sekula@presbyterianfoundation.org.