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.