Financial Advisor contributor Paul Ellis recently interviewed John Streur, CEO of Calvert Research and Management, to discuss Eaton Vance’s acquisition of the business assets of Calvert Investment Management, a recognized leader in sustainable investing.

When Thomas E. Faust, Jr., chairman and CEO of Eaton Vance, announced plans to acquire the business assets of Calvert Investment Management last October, the opinions of some sustainable investment industry veterans about John Streur’s two-year tenure as CEO at Calvert were turned on their heads.

The sweeping changes Streur had made related to personnel and the delivery of the firm’s ESG-based portfolios came into clear focus, and Calvert Research and Management was on its way to becoming Eaton Vance’s responsible investment manager. 

Ellis: John, what does Eaton Vance’s decision mean for Calvert’s existing relationships with financial advisors throughout the industry?

Streur: What it means for Calvert is just as important as what it means to our financial advisor partners. Calvert can now take advantage of the significant infrastructure Eaton Vance has in place to provide client service, distribution and marketing, as well as enhance investment management.

For advisors, this means better service, more frequent contact, and benefits over time to Calvert’s investment strategies from the depth of investment management capabilities that Eaton Vance brings to the table across equities and fixed income, in the United States and globally.

Ellis: Do you anticipate changes in your advisor relationships on broker-dealer platforms or with RIAs based on the name change to Calvert Research and Management?

Streur: During the last two years we have been focusing on value-added research related to sustainable investing. We have created indexing portfolios in addition to our actively managed portfolios. The name Calvert Research and Management takes into consideration that Calvert has been a leader in moving ESG metrics and analysis forward quite significantly. We intend to continue to innovate and grow that part of our business aggressively.

In terms of what this means to financial advisors on a go-forward basis, Calvert will increase access to value-added materials which feature the integration of ESG research within the investment management process.

Additionally, our ability to provide coverage of the marketplace will be greatly improved by Eaton Vance Distributors, which will be the main distributor for the Calvert Funds. Advisors who do business with Calvert will have access to Eaton Vance’s considerable network of relationships and established presence in areas including defined contribution, institutional and global markets. Calvert Research and Management will continue and expand our research efforts that have been so helpful to our products over the past couple of years.

Effective ESG Integration

Ellis: You mentioned the global scale of Eaton Vance’s work. A number of large asset managers in Europe are integrating ESG analysis across all of their portfolios. Any thoughts when we will see that type of ESG integration in the U.S. markets?

Streur: This is a critical point. The concept of integrating ESG research into an investment process is important to understand. The deep research necessary to analyze a company effectively related to managing the risks and taking advantage of the opportunities that are part of ESG analysis is very similar to fundamental investment research of a company’s financial results.

This is what ESG integration is all about, understanding a firm’s future financial potential based on the management team’s capabilities related to resource efficiency and managing environmental risks, as well as the way that company engages with the parts of society that it impacts. What do these things tell us about that company’s future financial results? That, to me, is ESG integration. That’s what we’re working on at Calvert.

For many people, ESG integration is simply, “We’ve considered these metrics because we have access to the information.” I think we will get to a point fairly quickly where many asset managers make the statement, “We consider ESG information in our investment process.” I do not think we will find very many asset managers who are developing a deep understanding of ESG analysis as Calvert has, for many years to come.

This is Calvert’s leadership position. As a part of Eaton Vance, we can capitalize on this. In other words, our objective is to be a leader in integrating our research into the decision-making process in order to find the companies that really qualify as leaders, the companies where we can expect to get a good investment outcome as a result of management’s expertise around ESG analysis.

The Role Of Advocacy

Ellis: John, Calvert has been one of the primary advocacy organizations in sustainable investing for many years. Do you anticipate any major changes to this role under Eaton Vance’s leadership?

Streur: Paul, we think that advocacy is one of the major elements of responsible investing. First, let’s get the returns right through an efficiently managed portfolio. Second, let’s fully research and understand the impacts that our companies are having on society and the environment, and how well management deals with those risks and opportunities. Third, let’s make sure that we align our proxy voting so that it’s consistent with our knowledge and our beliefs, and when necessary, engage with company management, NGOs and the public to move our business environment forward. This is a critical part of being a responsible investor. With additional resources to support our efforts, we expect advocacy to be more effective and more robust than ever.

Ellis: John, investment industry opinions about the impact of the Trump administration on the U.S. and global financial markets are all over the map, and not just in the sustainable investing community. What’s your perspective on how Calvert Research and Management will deal with a regulatory environment that’s sure to be different from the past eight years?

Streur: Certainly our clients believe that sustainable investing is as important under the Trump administration as it has been over the 40-year history of Calvert’s work. We don’t know for certain what the Trump administration will do, but a lot will be decided based on how companies and industries provide guidance to the sustainable investing community.

What we’ve found is that the companies that do this well, the leaders in managing their firms relative to ESG factors, want a stable, predictable regulatory environment. They like transparency, they like fair disclosure and they like a regulatory environment that creates a level playing field across their industry.

While there’s a lot to be concerned about with an administration that will roll back environmental regulations and standards across multiple industries, we believe the companies that are leaders in these areas will continue to move these business practices forward for the simple reason that it makes good business sense to do so.

Today, what is good for society and the environment is good for business. We may lose some of the progress made by the prior administration in environmental regulation and certain disclosures, but we think that businesses will continue along these trajectories. The leading firms are doing this in a way that makes good sense for shareholders and society. Our role as advocates and engaged investors takes on additional prominence in this environment.

The Value Of ESG Indexing

Ellis: The US SIF Foundation recently launched their 2016 Trends Report, which indicates growth of indexing as part of the strong growth across the sustainable investing industry.

You mentioned Calvert’s indexing portfolios, which join those that other sustainable asset managers have been creating. How should investors consider using passively managed products like these in their ESG portfolio construction process?

Streur: First of all, “so-called” ESG indexing differs across indexes.  Advisors should take a hard look at the criteria that goes into any of these indexes, and make sure they really understand the difference between an index from one company versus another, which may use very different ESG criteria and metrics.

The reason we are able to have broad-based indexes today is that many companies have begun to address environmental and social issues in terms of day-to-day operations management. That gives us a large inventory of companies to choose from, which is tremendously good news and means that real progress is being made. We can create indexes because we have enough companies to work with today to cover large parts of the capital markets.

For investors and advisors, this creates the opportunity and the ability to provide a low-cost index fund. For people who don’t want to attempt to add value through active management, I think indexing in the ESG space is here to stay and is going to grow and expand.

Who would not want to invest in companies that are helping to move our environmental and societal sustainability forward in a positive way? They get the benefits of good proxy voting and shareholder engagement at an attractive price. It’s a very good value proposition and I think advisors are embracing it.

I want to be clear that this means there is opportunity to move active ESG management forward. Having a large cohort of companies to choose from makes it clear that there is a large spread between companies at the upper and lower ends of that scale.

In addition to moving indexing forward this is a tremendous opportunity to grow active ESG management. Companies that do this very well offer superior investment opportunities. I think this continues to move along with mainstream investing, with strong, research-based ESG performance becoming even more exciting.     

Paul Ellis founded Paul Ellis Consulting to work with financial advisors who want to integrate sustainable and impact investment strategies for their clients.