Paul Hodgson: Calvert CEO, John Streur, recounts a David and Goliath environmental governance tale

In 2016, according to figures from Ceres, Eaton Vance, the $150bn fund manager, supported only 35% of climate-related shareholder proposals. In 2017, the year it acquired Calvert, the $22bn funds specialist, support went up to 40%. By 2018 – after what would appear to be some serious governance integration – support more than doubled to 85% and then climbed to 87% in 2019.

According to a spokesperson: “Eaton Vance Management began to modify its proxy voting policy guidelines with respect to environmental and social resolutions beginning with the 2017 proxy season, prior to the closing of EV’s acquisition of Calvert. We believed that many E&S issues, specifically, climate-related and environmental concerns, were beginning to have financially material impact on the companies we were invested in and we had a responsibility to use our proxy vote to voice those concerns. There is no question that we are much better informed about ESG due to Calvert’s influence and in many ways this has helped to accelerate change.”

But the story is more complex than that. Back in 2016, when RI spoke to John Streur, CEO of the Calvert Funds, and to Stu Dalheim, then VP of Shareholder Advocacy for Calvert, Streur said: “Will Eaton Vance identify different proxy voting policies that work? Well, that’s not the plan, necessarily, but we will be sharing our thinking surrounding our voting policies, our rationale.”

It may not have been the plan, but it has become the reality. RI spoke to Streur again to understand the process: “I sensed, at the time of the acquisition, some skepticism, some concern, about what would happen to Calvert,” he said. “However, Eaton Vance deeply understands what Calvert does; they are very knowledgeable about our research processes.”

Even prior to the Calvert acquisition, however, Eaton Vance’s support of 35-40% of climate resolutions far outstripped the likes of BlackRock, Fidelity and Vanguard, so clearly the firm was further along the road to understanding that these issues could play a role in long-term value.

“As we thought about a long-term home for Calvert,” said Streur, “understanding Eaton Vance’s trajectory was certainly a factor we looked at in whether there could be a potential partnership. It has always taken stewardship very seriously, with a fully-developed proxy voting process and involved portfolio managers in that process. So there has been, even historically, quite a bit of thought given to these proposals. But as Eaton Vance studied Calvert’s research they became very comfortable in better understanding the financial materiality and the opportunity to strengthen the companies in their portfolios. That is where our missions are fully aligned. How can we be helpful to the companies that we invest in to strengthen those businesses and move them forward to address these issues?”

Asked what the process was for the changes in proxy voting policies, Streur said: “Eaton Vance and Calvert, working together, have been involved in an effort to integrate Calvert’s ESG research throughout Eaton Vance’s investment research process. Consistent with that, we analysed Eaton Vance’s proxy voting guidelines and found, in certain cases, opportunities to update those policies as it related to many ESG issue areas. This was a collaborative effort that was part of a broader integration of ESG into Eaton Vance’s investment decision-making processes. It was conducted in a very thoughtful and detailed manner. Once we went through that process it resulted in updates to those policy guidelines and a subsequent change in voting practices.”

Voting changed on climate-related proposals, but it also changed for the ‘S’ of ESG. “It went right across the board, and also on governance issues as well,” said Streur. Indeed, according to data from ISS Analytics at the time of the acquisition, support for S & G resolutions by Eaton Vance was higher than for climate proposals. Thus, it would appear that it is on climate that Calvert has had the most influence.

“After the 2017 season, in the summer,” continued Streur, “we began working on a gap analysis on where the differences were in voting guidelines. This took around a month. It’s easy to identify differences in voting, that’s just a mechanical process, but mapping those decisions back to policies is a more complex undertaking. The process as a whole took around a year because everything had to be reviewed by governance committees and fund boards.”

But the process should not be characterised as an integration of Calvert’s voting guidelines into Eaton Vance’s. Streur described it as an ESG integration at Eaton Vance using Calvert’s research which then gave rise to a different set of proxy voting guidelines. And Eaton Vance’s ESG approach is different from Calvert’s even though both are using the same research. “For example, Eaton Vance would say if the stock is cheap enough, we’re probably going to buy it. Where Calvert would say that there’s a risk level we’re not going to go to, no matter how cheap the stock.”

It is surely an attestation of the financial materiality of ESG that Eaton Vance so quickly adopted much of Calvert’s research.

Calvert is still operating separately as the Calvert funds from within Eaton Vance. It still has an independent board. The funds are separately managed, separately invested and have their own voting guidelines. “Because Calvert clients want what Calvert offers,” said Streur. “We are serving this dual mandate of competitive investment results and driving forward from the long-term perspective positive change across a large number of ESG issues.” The dual mandate, he said, is both very important to Calvert and to its clients who continue to pour in.

In these days of mass consolidation, some distinction between funds is a welcome change.