The acquisition of the venerable SRI fund manager Calvert Investments by New York-listed asset manager Eaton Vance could prove a game-changer for the SRI field — and the investment “mainstream”.
Responsible Investor spoke to Calvert CEO John Streur and Stu Dalheim, VP of Shareholder Advocacy, about Calvert, its future and the acquisition. Streur joined the firm from Portfolio 21 in 2014, taking over from long-time CEO Barbara Krumsiek while Dalheim has been with the firm since 2000.
“We will take advantage of broader distribution opportunities at Eaton Vance,” said Streur, “and grow stronger. But there will be no reductions in the ESG research and advocacy team. In fact, we are likely to add resources to our already skilled team with 11 team members completely dedicated to this work, and me included as the twelfth member,” said Streur. “There are also four people in quantitative research who will be integrated into the team,” continued Streur.
“An important recent development has been our quantitative research into ESG metrics which has allowed us to create indices, and a powerful investment research tool and a powerful engagement process,” said Streur. “These efforts are enabling the integration of our research findings and our ESG metrics into our investment decisions.” Streur was referring to the ‘smart beta’ process described on Calvert’s website as differing “from a classic asset management process, where teams and research are usually separated by asset class, instead centering the process around and starting it with research in financially material ESG signals, which is shared with all asset class teams and applied to those that appear to have the highest probability of creating positive outcomes at low risk.”
Streur continued by describing some of the work the research and advocacy team has been doing recently, as well as some of the collaborative work.
“We are continuing to produce reports – the Power Forward report, which is a diversity report which maps the UN Sustainable Development Goals to the SASB (Sustainable Accounting Standards Board) metrics. We wrote a case study for the PRI’s Practical Guide to ESG Integration for Equity Investing on using our smart beta to construct a Water Research Index. We’ve been conducting collaborative research with George Serafeim at Harvard, developing a thesis and writing a report on the evolution of The Role of the Corporation in Society and we’ve been using ESG metrics to understand this.”
Dalheim said: “As you know, 2015 was something of a banner year for Calvert.” Calvert filed 47 shareholder resolutions in 2015, almost double the number in a typical year. More than half of these were withdrawn due to a successful engagement outcome. Those that were voted on typically received between a fifth and a third of voting support; a pretty high level of support for ESG resolutions in 2015. We are reviewing this activity, verifying successes, compiling data and studying all of this to fully understand what we have done, how we’ve done it and how to make improvements.”
I shared with them Eaton Vance’s voting record on ESG resolutions – in 2013 and 2015, it supported 38% of ESG resolutions, while in 2014 it supported 50% and 45% in 2016, according to data from ISS Voting Analytics.
Asked whether the acquisition would affect Eaton Vance’s voting policies, Streur said: “Eaton Vance will work hard to understand how we work.“They won’t change how we vote. We do understand how to engage; we file thoughtful resolutions and we have a tremendous institutional knowledge of how to get things done. 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.
“For example, we will let them know that companies that work within climate change, mitigating the risks associated with it, are the companies that attract capital and have the best employees. They will be hearing that from us. Eaton Vance has a very good culture compared to most traditional asset managers, which is why we think they are a good tie up for us.”
Incidentally, Calvert is based in Bethesda, Maryland near Washington DC while Eaton Vance, which is acquiring the firm from Nebraska-based mutual insurer Ameritas, is based in Boston.
I also asked them about the move to passive SRI indices and whether they thought that made them less effective in engagement. “Calvert’s passive SRI indices are big funds,” said Streur, “and thereby have more influence. It makes us a universal owner of securities in companies that meet the Calvert Principles for Responsible Investment. We might be investing in passive sustainable products, but we still engage with everyone. We do not do ‘best in class’,” stressed Streur. “But Calvert is basically fossil fuel free.”
Dalheim described the how the firm uses the Calvert Research System to inform its investment decisions and identify laggard companies. He explained: “Most of our engagement is focused on climate change, renewable energy use, human rights, diversity, disclosure and water; these broad, cross-cutting issues are unifying themes for our advocacy.” The method of engagement is decided on a case-by-case basis.
“We have written to 40 companies recently that the models identified as being more exposed to climate change and greenhouse gas emissions risks. If targeted engagement is successful it can broaden then to take account of other issues.”
As well as the recent terminations of outside management contracts described in RI’s earlier article on the Eaton Vance acquisition, a number of other subadvisor contracts have been terminated on Streur’s watch. I asked about the thinking behind this. “Each case is unique,” answered Streur. “We determined that Calvert could best manage Calvert Global Water and Calvert Global Energy Solutions, leveraging the quantitative processes that met the objectives of the funds more effectively than an active manager could achieve. This led to the termination of KBI [KBI Global Investors, the former Kleinwort Benson Investors] as a subadvisor, because the research indices we built led to strengthened internal capabilities and we could do the same work in-house.”
While Calvert is probably one of the oldest SRI firms, it does not make a lot of noise about its work. Streur said: “Our approach is two-pronged. We want to deliver the best investment solutions and direct capital to companies solving today’s problems. “Many people talk about metrics and materiality, but we want to focus on the materiality of the societal and environmental impacts that corporates can have.” Assuming Calvert’s approach genuinely percolates across to its new parent, the acquisition could prove to be win-win all round.