As environmental, social and governance (ESG) investing rapidly evolves, John Streur, CEO & president of Calvert Research and Management, outlines how ESG integration is influencing capital markets and how the investment management firm is adapting its investment decision making process

At Calvert Research and Management, we focus on improving the market infrastructure and corporate value creation through better management of material environmental, social and ESG risk exposures. We set ourselves apart with innovative research focusing on financial materiality, as well as a structured engagement approach that can act as a catalyst for positive change. This has afforded us the opportunity to develop a sophisticated understanding of financial materiality and its impact on value creation over time.

Calvert boasts a reputation as a global asset manager with substantial capabilities across the global capital markets. Our responsible investing offerings span developed markets, emerging markets, equity and debt markets and extend into quantitative and passive solutions. Our solutions are available to clients in a number of vehicles, including highly customized separate accounts.

Our long history of responsible investing

We believe we have been a leader in responsible investing for decades. In 1982, we launched the Calvert Social investment Fund (CSIF), which was the first to integrate ESG factors with financial analysis, long before the terminology was developed. That same year it also became the first mutual fund to oppose apartheid, which was a position we held until we re-entered a free South Africa, post 1994.

Calvert is an original signatory to the United Nations Global Compact (UNGC) when it launched in 2000. The UNGC is the world's largest corporate sustainability initiative and created both the Millennium Development Goals (MDGs) and Sustainable Development Goals (SDGs) as well as being a founding member of the Principles of Responsible Investing (PRI), the United Nations Environment Programme Finance Initiative (UNEP-FI) and Sustainable Stock Exchanges (SSE) initiative, among others.

By bringing together global companies, UN agencies, national governments, and civil society to target global improvements in the area of human rights, labour and the environment, the UNGC has been a catalyst for sustainable investing and development over the past 20 years. As its 65th signatory we have seen it grow to incorporate 14,054 companies and 162 countries, including some of our competitors. We welcome their inclusion because it strengthens our overall position as we strive to be the catalyst for change in making the industry better.

A pivotal time for ESG

We believe ESG investing will continue to evolve rapidly over the next decade. Soon, it will be difficult to distinguish between ESG investing and excellent investment decision making. It is becoming completely integrated with how capital markets function and the investment decision making process.

A company's future security depends on their ability to increase capabilities and mitigate risks on material ESG issues. We believe an effective way to drive positive change is to encourage companies to improve in these areas. To do so, we approach issuers with competitive insights, financially sound business cases and practical solutions they can use to improve their operations from an ESG perspective.

One way to improve the management of these factors is increased transparency. We want to understand how companies are exposed to ESG risks and how they will address them for the benefit of shareholders and society.

With that in mind, an area of recent focus and success is working with the largest companies in the US to attain greater Equal Employment Opportunity (EEO-1) disclosures. This refers to information about a company's workforce, broken down by several racial and ethnic categories and by gender at each of 10 professional levels, which companies of a certain size are required to disclose to US regulators.

Our research indicates that diversity is material to company performance, so this information is essential for investors. However, there is no requirement to make this information available to the public. Calvert launched a campaign to write to 100 of the largest companies in our portfolios to release their EEO-1 reports so the public and investors would have this information and make actionable decisions. Thus far, 40 of the 82 companies targeted by Calvert have agreed to disclose, and Calvert continues to engage with the remaining companies

To further spur this drive towards greater transparency and greater sustainability accountability, we collaborate with the Sustainability Accounting Standards Board (SASB), which guides the disclosure of financially material sustainability information by companies to their investors. We were one of the founding members of SASB, and work with that organisation and regulators to develop these guidelines because we know the language of investment managers and have a strong track record of working with companies to improve their sustainability as part of a push to create greater long-term value for shareholders.

Additionally, the Calvert Institute for Responsible Investment serves as an industry resource by bringing together academic research and thought leadership. This important institution further strengthens our dedication and reputation within the responsible investing and ESG industry to further drive positive change. We believe Calvert is a catalyst for change in all industries and ultimately will help companies, countries and people benefit through sustainable, long-term value creation.