By Harry Prabandham · Updated September 28, 2026
Investing & Markets
Values-Based Investing: Aligning a Portfolio With Your Priorities
Values-based investing builds a portfolio around personal, faith, or community priorities using screens, voting, and community investments.
Values-Based Investing: Aligning a Portfolio With Your Priorities
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What is values-based investing?
- It starts from personal priorities, such as faith, environmental, or community goals, and applies them to investment choices.
- ESG investing often weighs environmental, social, and governance factors as potential financial risks; the two overlap but aren't the same.
- Common tools include exclusion screens, positive selection, shareholder voting and engagement, and community investing.
- There's no single standard, so fund labels and methods vary widely and the prospectus is the place to check.
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What is values-based investing?
- It starts from personal priorities, such as faith, environmental, or community goals, and applies them to investment choices.
- ESG investing often weighs environmental, social, and governance factors as potential financial risks; the two overlap but aren't the same.
- Common tools include exclusion screens, positive selection, shareholder voting and engagement, and community investing.
- There's no single standard, so fund labels and methods vary widely and the prospectus is the place to check.
How does faith-based investing work?
- Many faith-based funds exclude companies involved in activities defined by the fund's religious guidelines, such as alcohol, tobacco, or gambling.
- Shariah-compliant approaches avoid interest-based income and screen out certain businesses and highly indebted companies.
- Each fund or its advisory board sets the screens, so two funds with similar names can hold different companies.
How can shareholders use their votes?
- Owning shares carries the right to vote on directors and proposals at annual meetings.
- Fund investors generally rely on the fund's votes, reported each year on Form N-PX; some managers offer voting-choice programs.
- The shareholder proposal process is in flux: the SEC proposed rescinding Rule 14a-8 in September 2026.
What is community investing?
- Community Development Financial Institutions (CDFIs) are lenders certified by the Treasury Department's CDFI Fund to serve underserved communities.
- Deposits at CDFI banks and credit unions can be FDIC- or NCUA-insured within standard limits.
- CDFI loan-fund notes generally aren't insured and can be illiquid, so the issuer's finances and terms matter.
How can you define and document your priorities?
- Separate firm exclusions from preferences, and rank the issues that matter most.
- Decide how to treat broad index funds that hold companies you would otherwise exclude.
- Write the criteria down so they can be applied consistently across accounts, and revisit them as priorities change.
What are the trade-offs?
- Excluding industries narrows the investable universe, so returns can differ from broad benchmarks in either direction.
- Screened funds may charge more than broad index funds.
- Labels can overstate what a fund does; the SEC's Names Rule generally requires funds to invest at least 80% consistent with what their names suggest.
- Impact is hard to measure consistently, so it helps to ask how a fund defines and reports it.
Key takeaways
- Values-based investing starts from your priorities and uses screens, voting, and community investments to act on them.
- Definitions vary by fund, so read the methodology rather than relying on the name.
- Community investments differ in insurance, liquidity, and credit risk.
- Exclusions change diversification and costs, so weigh the trade-offs alongside your priorities.
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