Vatican bank launches ethical investment index

The IOR launched two ethical investment indices “designed to serve as a reference for Catholic investments worldwide.”

The Institute for Works of Religion launched on Tuesday two ethical investment indices “designed to serve as a [benchmark] reference for Catholic investments worldwide.”

The Torrione di Niccolò V, the Vatican headquarters of the Institute for the Works of Religion. Joi Ito/wikimedia CC BY 2.0.

The two equity benchmarks, the Morningstar IOR Eurozone Catholic Principles and the Morningstar IOR US Catholic Principles, were developed with Morningstar, an American financial service provider and aim to offer an ethical benchmark for investors.

The launch is the latest in a series of developments from the IOR, commonly called the Vatican bank, which has emerged in recent years as the strongest performing Vatican financial body, following years of reforms started by Pope Francis aimed at ethical investments and transparency.

According to a Feb. 10 statement from the IOR, the indices “are built following market best practices and in accordance with Catholic ethical criteria, and are designed to serve as a reference for Catholic investments worldwide.”

“This initiative further strengthens the alignment between the reference parameters used by the Institute and its Investment Policy, developed in accordance with the Social Doctrine of the Church, and forms part of IOR’s broader commitment to ensuring that its investment process is fully consistent with Catholic ethical principles,” the statement adds.

Both indices are made up of 50 companies, all medium and large capitalized companies that the IOR considers to be “fully compliant with the IOR Investment Policy and are designed to incorporate future developments in the Institute’s approach to ethical Catholic investing.”

The announcement follows years of work within the Vatican to promote an ethical investment policy following a number of scandals, and simmering tensions between financial institutions.

In 2021, Libero Milone, former auditor general of the Vatican, said in an interview that the Holy See had invested funds in a pharmaceutical company which produces an emergency contraceptive “morning after pill,” but sold its shares in the company when the Vatican’s auditor reported the investment to senior Church officials.

Just months after a damning internal report from the Financial Supervisory and Information Authority on anemic risk management and investment policies at APSA, the Holy See’s investment management body, Pope Francis in 2022 created a Committee for Investments.

According to Francis’ apostolic constitution on the Roman curia, the committee is charged with “ensuring the ethical nature of the Holy See’s movable investments according to the social doctrine of the church and, at the same time, their profitability, adequacy and risk,” and presumably avoiding a repeat of unethical investment scandals.

In that same year, Francis ordered that all curial investments be placed under the administration of the IOR , and that the IOR would “exclusively” perform the role of “asset manager and custodian of the movable assets of the Holy See and of the institutions linked to the Holy See.”

Pope Leo repealed that order last year. But The Pillar has previously reported that the Committee on Investments has become a source of tension with the leadership of other financial institutions and departments, according to several curial officials, including APSA, the Secretariat for the Economy, and the Institute for Works of Religion.

“The committee was supposed to supply what was internally lacking at APSA,” one senior financial official told The Pillar last year. “Clarity on what sectors and types of project it is — and is not — acceptable for the Church to become involved with.”

“Instead, it has become a total center of power. The committee does not advise, quite often it directs specific investments — positively — that is to say, ordering a particular investment of its own selection to be made, not giving advice on the proper choices of others.”

The IOR, meanwhile, has been one of the best-performing financial institutions in the Vatican, following reforms promoted during Pope Francis’ pontificate.

According to the bank’s 2024 annual report, released June 11, the IOR recorded a net profit of 32.8 million euros (almost $38 million), an increase from 30.6 million euros ($35 million) in 2023.

The result enabled the Vatican’s only commercial bank to issue a dividend of 13.8 million euros ($15.8 million), all of which Pope Francis directed to charitable projects.

Writing in the annual report, the bank’s president Jean-Baptiste de Franssu said that “It is important to note that as there is no lender of last resort in the Vatican to deal with possible short-term market crises and, as there is no deposit guarantee laws, IOR has adopted a prudent dividend policy.”

“This provides IOR with adequate level of capital to ensure that its operations are sustainable, and its clients protected,” de Franssu said.

The 2024 figure was slightly higher than in 2023, when the IOR set a dividend of 13.6 million euros ($15.6 million).

Each year, the IOR publishes its intermediation margin — the difference between how much it made on interest versus how much it paid in interest to clients. In 2024, the margin was 51.5 million euros ($59 million), representing a 3.6% increase from 2023.

The bank also reports annually on its Tier 1 capital ratio, an international standard measuring liquidity and institutional risk exposure for financial institutions. The minimum international banking requirement is a ratio of 6%. The ratio for larger U.S. banks is usually somewhere between 13% and 17%,

In 2024, the IOR had a Tier 1 ratio of 69.4%, up from 59.8% in 2023.

“The robustness of the Tier 1 ratio, as well as the liquidity ratios, rank the Institute among the most solid financial institutions in the world in terms of capitalization and liquidity,” the Institute said in a June 11 press release.

The IOR has 105 employees and over 12,000 clients in more than 110 countries.

In 2024, it had 5.7 billion euros ($6.5 billion) in total assets under management, an increase from 5.4 billion euros in 2023 ($6.2 billion).

Last year, the IOR had 731.9 million euros ($841 million) in equity, the net value of its assets after subtracting all liabilities. This marked an increase of 64.3 million euros ($74 million) from 2023.

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In previous decades, the IOR had been at the center of several financial scandals since it was founded in 1942, most notably the Banco Ambrosiano scandal of the 1980s.

In 2021, the IOR’s own former president became the first person to be given a jail sentence by a Vatican City court for financial crimes, after defrauding the bank of millions by using his position to sell parts of the IOR’s property portfolio to himself and co-conspirators.

Following that result, de Franssu hailed the recovery of more than 17 million euros by the bank “which had been stolen from the [IOR] before 2014” as “amongst the important achievements” of 2022.

Referring to the IOR’s checkered history in the 2024 annual report, De Franssu wrote: “All legal actions taken over the years against abuses that occurred before 2014 as to seek justice also progressed well. From the total amount of over 33 million euros [$38 million] that IOR managed to claw back over the last 10 years, 1.6 million euros [$1.8 million] were booked in 2024 and much progress was made in the various ongoing court cases.”

Under de Franssu’s leadership, the bank has gained recognition as a committed agent of financial vigilance.

In 2019, it was the IOR leadership who flagged — despite threats and offers of “protection” from other Vatican departments, including the Secretariat of State — the suspicious activity which led to the uncovering of the London property scandal and Vatican financial crimes trial which convicted nine people, including a cardinal, in 2023.