God-washing: Fund fined for misleading clients about its 'biblically responsible investing' strategy

By Lukas I. Alpert

SEC slaps Inspire Investments with failing to meet the investment criteria it marketed, after a similar crackdown on 'greenwashing' among ESG funds

The devil is in the details.

An Idaho-based investment fund that pitched itself as focusing on "biblically responsible investing" was hit with a fine Thursday by the Securities and Exchange Commission for failing to meet the investment criteria it advertised to its clients.

The SEC order accused Inspire Investing Inc. of failing to perform the kind of research on companies necessary to establish whether they met the criteria the fund had laid out in its investment prospectuses.

"Investors must be able to rely on advisers acting consistently with their represented investment process or strategy," said Corey Schuster, co-chief of the asset-management unit in the SEC's division of enforcement. "Here, Inspire Investing's investment-screening process was not what it represented to investors, resulting in it making investments that were contrary to its stated investment criteria."

The move comes amid a broader crackdown by the SEC on principle-focused investment funds, particularly ESG funds, that fail to adhere to the criteria they pitch to investors. Several ESG funds - which focus on environmentally friendly and socially responsible investments as well as corporate governance - have been similarly accused of not meeting the criteria they have marketed, a practice known as "greenwashing."

Inspire told investors that it used an in-depth screening process in order to avoid investments in companies that profit off the sale of things like alcohol, tobacco and cannabis or that are involved in the sale or promotion of contraceptives, abortion services, IVF or stem-cell research. It also said it avoids investments in companies that promote LGBTQ+ and abortion rights.

But the SEC said the firm failed to strictly adhere to these principles and was inconsistent in how it decided where to place its investments. The SEC also noted that Inspire claimed it relied on data-driven assessments to inform its decisions, but that in fact it largely used a manual approach to make its evaluations.

The firm agreed to settle the charges and pay a $300,000 fine.

Robert Netzly, Inspire's president and chief executive, said he was happy to have resolved the issue with the SEC and to have the agency's guidance as to how best to make these determinations.

"We have been making best efforts to screen and create processes and procedures to be transparent to our faith-based investors," Netzly said in an interview. "We are thankful to now have guidance from the SEC."

He said the SEC's probe began in 2022 and that the firm had already resolved many of the issues the agency had raised. He said the fund would remain committed to its investment principles.

"We will continue to maintain our focus on making faith-based investments and are not going to back off on those principles," he said.

-Lukas I. Alpert

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09-21-24 1136ET

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