by John Streur,
President and CEO of
Calvert Investments
For this year-end edition of the Green Money Journal, I was asked to write a piece focused on what lies ahead for responsible investing. But it might be more important right now to pause and reflect on the unprecedented year that we have had. Despite the fact that 2015 did not bring the market returns that you or I would have wished for as investors, when we look back we are likely to see this year as a transformative one for our economic and social systems.
From Vision to Strategy
In September, the United Nations’ adoption of the Sustainable Development Goals (SDGs) set a framework for concerted action by governments, civil society, and the private sector to solve critical global challenges. Unlike their predecessors, the Millennium Development Goals (MDGs), which were conceived by international development institutions and adopted in 2000, the Sustainable Development Goals are the product of a great deal of engagement across international governments and civil society. Both sets of goals seek to solve major global issues such as extreme poverty, hunger, access to health care, gender equality, and the effects of climate change and political instability. However, the SDGs are more comprehensive than the MDGs and set bolder targets. For example, while the MDGs aimed to reduce poverty by half, the SDGs aim to eliminate severe forms of poverty entirely.
At the United Nations Summit, where member states officially adopted the SDGs, the vital role of corporations and investors in advancing the goals was clear. Private sector activity undoubtedly bears significant economic, social, and environmental impacts globally, and corporations and investors need to ensure that we are making positive contributions. It was my privilege to participate in the Summit’s Private Sector Forum and chair a session on peace and stability. Participants from the corporate and investor communities were asked to make formal commitments in support of the goals and, responding to this call, I announced a new initiative that Calvert Investments is undertaking with Professor George Serafeim to advance the SDGs through responsible investing. We will map the SDGs and their underlying targets to corporate environmental, social, and governance metrics, creating tools that investors can use to evaluate companies’ stake in contributing to the SDGs and their performance in making the goals a reality. This project will help investors identify the companies that are contributing most meaningfully to responsible growth and allocate capital to these companies, effectively allocating capital to achieving the goals. Corporations and investors must contribute to the goals if we, as a global society, are to achieve them.
Now that the SDGs have been adopted, we must maintain the momentum that will drive solutions to our most pressing concerns. The international agenda will certainly help to keep global attention on these issues – world leaders, with strong and growing support from investors and companies, will meet in Paris this December for the United Nations Climate Change Conference, known informally as COP21. The conference will aim to produce an agreement that would limit the increase of global temperatures to 2° Celsius above pre-industrial temperatures. While forging a global pact will require continued and likely challenging negotiation, there is clear momentum toward a low carbon economy, with disruptive impacts for manufacturing, energy, transportation, and development. Companies and investors can benefit financially and be part of the solution. We must create and seize emerging opportunities as the world makes an enormous shift toward a more sustainable future.
The Changing Role of Responsible Investors
Calvert’s most recent white paper, “The Role of the Corporation in Society: Implications for Investors,” details the outsized economic, social, and environmental influence of corporations. The 500 largest companies in the world comprise approximately 50% of the world’s stock market capitalization, an astonishing statistic considering that there are close to 50,000 unique publicly listed and actively traded companies worldwide. For decades, socially responsible investors have played a critical role in pointing the finger at corporations and holding them accountable, in part by refusing to invest in the bad actors. But should that be the main role of the responsible investor moving forward?
Corporations bear ever greater environmental and social impacts, ranging from carbon emissions, biodiversity, civil rights, and conflict minerals, to labor conditions, diversity, corruption, and affordable access to products. Acknowledging the magnitude of these impacts and their relevance to profits and losses, companies are integrating sustainability concerns into core business operations. Detailed corporate sustainability reports have become commonplace. Well-funded public policy initiatives represent corporate views on social and environmental issues. Corporations’ expansive environmental and social impacts combined with their ability to develop innovative solutions and direct considerable resources to executing these solutions places companies in a special position relative to other actors—namely governments and civil society organizations—in addressing global environmental and social challenges. This does not absolve governments and NGOs from fulfilling their duties to protect the public good, but it does clarify the private sector’s obligation to manage negative impacts and maximize positive ones. Companies can and should be—and increasingly society requires them to be—forces for good. Companies must embrace this role, and investors must encourage and reward it. We can do this by striving to produce competitive financial returns while evaluating companies’ environmental, social, and governance performance, and actively advocating for more sustainable, ethical business approaches. In all of this work, we must remember the role of responsible investing in enabling inclusive prosperity, whether through investment in the world’s largest companies, which touch billions of people via employment, products, and services, or through impact investing that supports community development at the most basic levels.
Proving Our Value
Our industry and my company, Calvert Investments, are at a unique moment in our history. As trailblazers in the socially responsible investment movement, we have spent years defending our perspectives and convincing the mainstream of our value. Today, we see signs that point to a sea change in attitudes about responsible investing. Leading corporations are expanding sustainability activities because they benefit the bottom line and stakeholders. Large wirehouses and traditional asset managers are now quick to discuss how ESG factors into their product mix and investment theory. Even as ESG goes “mainstream,” responsible investors with seasoned points of view on sustainable, ethical business must stay in front and drive continued, accelerated progress that proves the value of our approaches and matches the scale and scope of global challenges. But how do we judge success? What does it take to be a responsible investor?
Success in our field has always required insightful analysis of corporate financial information. Success in responsible investing requires capitalizing on rich sets of non-financial information that help us to understand corporate behavior. Recognizing this, Calvert has overhauled our research process, shifting from binary decision-making to a data-focused, quantitative system for rating and ranking corporate ESG performance. Using this system allows us to identify the leaders, the laggards, and every relative ranking in between. We are cooperating with industry peers in a pre-competitive manner to ensure that corporate disclosure of ESG factors continues to improve and that capital market players continue to learn how to use sustainability information for investment decision-making. We are working to ensure that new tools are developed to help identify and incorporate the value of natural capital, such as forests, biodiversity, and water, into financial models.
Succeeding as a responsible investor requires more than managing data to achieve the best financial returns. Success requires combining analysis with activism and encouraging corporate behavior that produces inclusive, sustainable, long-term value. Responsible investors share a long history of effective corporate engagement that has led to significant shifts in how companies consider and respond to sustainability challenges. We must continue to prioritize this work and use it to differentiate our value—and values—in a crowded marketplace.
As a community, we must stay true to our history and our common goals. In the face of mainstream competition, we must constantly test our assumptions and challenge ourselves to do better. We must continue to innovate and lead, understanding that one day, all investing may be “responsible” investing.
Article by John Streur, President and Chief Executive Officer of Calvert Investments, Inc. (www.calvert.com ), an investment management firm that specializes in responsible and sustainable investing across global capital markets. Calvert serves all types of investors through its family of mutual funds and separate accounts. He is also President and a Trustee of the Calvert Funds and a Director of Calvert Foundation and member of its Executive Committee.
Mr. Streur began to focus his energy exclusively on responsible and sustainable investing in 2012, as President, Director and Principal of Portfolio 21, a boutique investment management firm specializing in global environmental investing. Previously, John spent 20 years at Managers Investment Group LLC (and its predecessor), a firm he co-founded and where he served as President, CEO and Chair of the Investment Committee. John was also President and Trustee of the firm’s fund family, Managers Funds and Managers AMG Funds. Managers Investment Group LLC grew to over $30 billion in assets under management and offered investment strategies across global equity, debt and derivative markets. John has managed socially responsible investments at the request of institutional clients, including public funds, religious institutions, and college and university endowments since 1991.
Mr. Streur is a graduate of the University of Wisconsin (Bachelor of Science, College of Agriculture and Life Sciences), where he also competed nationally and internationally as a member of the University\’s Rowing Team and as a member of the United States National Rowing Team. He and his wife Mary have four adult children.
