New Vatican Document on Markets and Ethics

While CEOs may have nervously read Larry Finke’s letter, they may find greater guidance in their task reading a new Vatican document, Oeconomicae et pecuniariae quaestiones (Considerations for an Ethical Discernment Regarding Some Aspects of the Present Economic-Financial System). The new document, approved by Pope Francis, running to just over 11,000 words, brings Vatican heft to financial instruments including shareholder risk, subprime mortgages, derivatives, credit default swaps, interbank loans (LIBOR), shadow banking systems (think, cryptocurrency), and offshore tax havens.

While some may consider Pope Francis an outlier, the 49 footnotes, grounded in traditional Catholic teaching, illustrate the continuity of St. John Paul II, Pope Benedict, and Pope Francis on papal teaching related to the economy. The document aims to apply those principles to the current context. The document posits:

No profit is in fact legitimate when it falls short of the objective of the integral promotion of the human person, the universal destination of goods, and the preferential option for the poor. (#10)

In other words, profit in the marketplace, in and of itself, is not enough.

Another paragraph reflects the concerns that we raise in our resolutions regardinging executive compensation with the pharmaceutical companies:

In addition, such logic has often pushed managements to establish economic policies aimed not at increasing the economic health of the companies that they serve, but at the mere profits of the shareholders, damaging therefore the legitimate interests of those who are bearing all of the work and service benefiting the same company, as well as the consumers and the various local communities (stakeholders). This is often incentivized by substantial remuneration in proportion to immediate results of management, but not likewise counterbalanced by equivalent penalization, in the case of failure of the objectives, though assuring greater profits to managers and shareholders in a short period, and thus ending up with forcing excessive risk, leaving the companies weak and impoverished of those economic energies that would have assured them adequate expectations for the future. (#23)

Not only does it speak to management and shareholders, the document offers some challenges to consumers as well:

It becomes therefore quite evident how important a critical and responsible exercise of consumption and savings actually is. Shopping, for example, a daily engagement with which we procure the necessities of
living, is also a form of a choice that we exercise among the various products that the market offers. It is a
choice through which we often opt, in an unconscious way, for goods, whose production possibly takes place through supply chains in which the violation of the most elementary human rights is normal or, thanks to the work of the companies, whose ethics in fact do not know any interest other than that of profit of their shareholders at any cost.

It is necessary to train ourselves to make the choice for those goods on whose shoulders lies a journey
worthy from the ethical point of view, because also through the gesture, apparently banal, of consumption, we actually express an ethics and are called to take a stand in front of what is good or bad for the actual human person. Someone spoke of the proposal to “vote with your wallet”. This is in reference to voting daily in the markets in favor of whatever helps the concrete well-being of all of us, and rejecting whatever harms it. (#33)

For those of us who engage in socially responsible investing, the document concludes with some significant encouragement:

In front of the massiveness and pervasiveness of today’s economic-financial systems, we could be tempted to abandon ourselves to cynicism, and to think that with our poor forces we can do very little. In
reality, every one of us can do so much, especially if one does not remain alone.

Numerous associations emerging from civil society represent in this sense a reservoir of consciousness, and social responsibility, of which we cannot do without. Today as never before we are all called, as sentinels, to watch over genuine life and to make ourselves catalysts of a new social behavior, shaping our actions to the search for the common good, and establishing it on the sound principles of solidarity and subsidiarity. (#34)

The most evocative phrase for me from the document is here, that “we are called, as sentinels.” Frank Sherman, when describing our work in corporate social responsibility, likes to say that we are “canaries in the coal mine.” While more and more people are taking up the work of fighting human trafficking, we would be nowhere were it not for the work of so many dedicated religious sisters who have kept a laser-like focus on the issue. Time and again, faith-based socially responsible investors take up a concern, “as sentinels,” long before others take notice. For 45 years, SGI has been a pioneer in socially responsible investing, and we can draw strength from this document that our work is critical for achieving a more just and sustainable economy.

The full text of the document can be found here in a PDF or on the Vatican website here.

Helpful commentary on the new document can be found here:

• People before Profits: A New Vatican Document on the International Financial System (Commonweal)
• Vatican sees risk of ‘social collapse’ in global economic order (Crux)
• Vatican offices decry ‘profoundly amoral culture’ of global financial system (NCR)
• Vatican Denounces Offshore Tax Havens: Tax havens help the ‘recycling of dirty money’ from the ‘mafia, war booties’ (Wall Street Journal) Nota bene: the article has an unfortunate headline, and the content is better than the title. 
• New Vatican document: All economic activity has moral dimension (America)

Less helpful but interesting commentary:

• Sinful Derivatives Have Their Uses (Bloomberg)