Richard England, who sub-advises the $1.7 billion Calvert Equity Portfolio (CSIEX) mutual fund, is a portfolio manager who would be happy to run numbers all day as he checks his holdings' performance and seeks new stocks to invest in.
But as it turns out, the environmental, social and governance (ESG) criteria that England must comply with as a Calvert Asset Management Co. sub-advisor have helped assure the solid stock picks that have won the Calvert Equity Portfolio a four-star rating from Morningstar.
"The companies we consider as high quality match up pretty well with what Calvert's analysts consider a pass based on their ESG compliance criteria," England said in an interview with AdvisorOne on Wednesday. "We've worked seamlessly together with Calvert for 12 years, and we never invested in WorldCom or Tyco or any of those poster children for bad behavior back then. And in 2008, we didn't go down as badly because we never owned Fannie, Freddie, Countrywide, Lehman or Bear Stearns."
Those firms were not high-quality value propositions as defined by England's sub-advisory firm, Atlanta Capital Management, which oversees the Calvert Equity Portfolio. Plus, Calvert's own stable of 18 analysts gave the troubled firms a failing grade according to the ESG fund firm's seven ESG compliance metrics. This doubling of effort has resulted in strong downside protection for the fund.
"The p
eople at Calvert will tell you that ESG issues can often turn into tomorrow's financial problems," England (left) said. "In their opinion, the risks rise when there are environmental, social or governance issues."
Calvert's seven metrics are the key drivers for the firm's sustainable and responsible strategy, according to Bennett Freeman, senior vice president for sustainability research and policy at Calvert Asset Management. These include governance and ethics, workplace, environment, product safety and impact, international operations and human rights, indigenous people's rights and community relations.
According to the Social Investment Forum, socially responsible investing, or SRI—a term now losing ground to the more popular ESG abbreviation—is a broad-based approach to investing that encompasses about $3.07 trillion out of $25.2 trillion in the U.S. investment marketplace.
Caught on the fly for a phone interview between meetings at Coca-Cola Co., Dow Chemical and Shell Oil, Freeman said Calvert's signature funds are invested only in companies that meet "each and every one" of those core criteria.
Calvert monitors business ethics issues such as disclosure of policies and procedures, board independence and diversity, executive compensation, shareholder accountability, and attention to stakeholder concerns. Calvert avoids companies with weak internal audit controls, poor governance structures or a record of illegal or questionable activities such as securities fraud or insider loans.
"We share this attitude with Richard," Freeman said. "There are two reasons why these criteria matter to investors: because people want to invest in
companies that align with their values about human rights and environmental standards, and because ESG issues actually can matter to companies' performance."
