^{Photo: Bloomberg.com}

The Vatican Bank has taken a significant step into modern capital markets, launching two equity indexes designed to align with Catholic ethical principles. The move marks the institution’s first formal entry into thematic benchmark construction and could pave the way for exchange-traded funds and other investable products tied to faith-based criteria.

The newly introduced benchmarks — one focused on the Eurozone and the other on the United States — represent a strategic evolution for the Vatican’s financial arm as it seeks greater transparency, credibility and global engagement in responsible investing.

Two Catholic Principles Indexes Debut

The Vatican Bank, formally known as the Institute for the Works of Religion, introduced the Morningstar IOR Eurozone Catholic Principles Index and the Morningstar IOR U.S. Catholic Principles Index. Each benchmark includes 50 medium- and large-cap companies screened for consistency with Catholic social teaching and ethical guidelines.

The selection process evaluates companies on criteria such as respect for human dignity, social justice, stewardship, governance practices and alignment with Church doctrine. Firms involved in activities considered inconsistent with Catholic moral standards are excluded.

According to the bank, the new indexes are designed not only to reflect ethical investment principles but also to provide measurable, performance-based benchmarks for portfolio evaluation.

Giovanni Boscia, deputy director general and chief financial officer of the Vatican Bank, said the introduction of structured benchmarks enhances transparency and rigor in performance reporting. He emphasized that aligning investments with established Catholic criteria strengthens the bank’s role as a financial reference point for the global Catholic community.

Key Holdings Reflect Mainstream Market Exposure

The Eurozone index includes major European companies such as semiconductor equipment leader ASML Holding and telecommunications giant Deutsche Telekom among its top components. These firms represent significant players in technology infrastructure and communications across Europe.

The U.S.-focused index includes large-cap technology and consumer names such as Meta Platforms and Amazon. The inclusion of globally recognized companies demonstrates that ethical screening does not necessarily exclude participation in leading sectors like artificial intelligence, cloud computing and digital commerce.

By concentrating on 50 constituents per index, the benchmarks aim to balance diversification with a clear thematic identity. The indexes focus on companies with strong liquidity, sizable market capitalizations and established operating histories.

Potential ETF Launches and Licensing Opportunities

The creation of these benchmarks sets the stage for possible licensing agreements that could enable asset managers to launch exchange-traded funds tracking the indexes. While no ETF has yet been announced, the structure of the indexes makes them suitable for replication through passive investment vehicles.

The global ETF market has expanded rapidly in recent years, growing nearly 30% to surpass $14 trillion in assets in 2024. Forecasts suggest that total ETF assets could approach $30 trillion by 2029 as investors increasingly favor low-cost, transparent and rules-based strategies.

Faith-based and values-driven funds have carved out a niche within this broader trend. For example, Ave Maria Mutual Funds, which adheres to Catholic teaching in its portfolio construction, reported approximately $3.8 billion in assets under management last year. The Vatican Bank’s entry into index creation positions it to participate in this expanding segment of ethical and thematic investing.

A Strategic Shift Amid Ongoing Reform

The Vatican Bank’s move into structured financial products comes amid a broader effort to modernize its operations and restore trust after decades of controversy. The institution has faced scrutiny over allegations of money laundering, governance failures and historic ties to financial scandals, including the collapse of Banco Ambrosiano in 1982.

More recently, in 2021, a former Vatican Bank president was convicted in connection with financial misconduct tied to his tenure at the institution. Since then, reforms have focused on strengthening oversight, enhancing compliance frameworks and increasing financial transparency.

By launching Catholic-aligned equity indexes in partnership with a major global index provider, the Vatican Bank signals a shift toward internationally recognized financial standards and measurable investment frameworks.

Faith-Based Investing Enters the Mainstream

The debut of the Catholic Principles Indexes reflects a broader trend in global finance: the integration of ethical, environmental and social considerations into mainstream investment strategies. While ESG investing has become widely adopted, faith-based frameworks represent a more targeted subset that aligns portfolios with specific religious doctrines.

For Catholic institutions, dioceses, foundations and individual investors seeking portfolios consistent with Church teaching, structured benchmarks provide clarity and comparability. They also allow performance tracking against recognized standards rather than custom-built internal screens.

As investor interest in values-based investing continues to grow, the Vatican Bank’s initiative may serve as a template for other religious or mission-driven institutions seeking greater participation in global capital markets.

With clearly defined ethical criteria and potential ETF applications on the horizon, the Vatican Bank’s entry into equity index development represents both a symbolic and strategic milestone in faith-aligned finance.