Scan the list of holdings in the Calvert Large Cap Value Fund (assets: $90 million) and you might be surprised given the investment management firm's 25-year history as a leader in sustainable and responsible investing. Companies with big responsibility challenges such as Wal-Mart Stores, ExxonMobil and Dow Chemical could send more than a few socially conscious investors scurrying.

"Uniformly positive," though, is how Bennett Freeman, senior vice president of Sustainability Research and Policy at Calvert Group Ltd., describes the reaction to the fund. It was introduced by Calvert in December 2008 as part of its new SAGE Strategies investment approach.

With corporate responsibility and sustainability becoming much more mainstream, "there's a lot of action coming from companies that don't meet all of Calvert's criteria," says Freeman. Some are emerging as industry leaders. SAGE-short for Sustainability Achieved Through Greater Engagement-lets Calvert invest in such companies even if they fail some of its core environmental, social and governance (ESG) screens.

"SAGE supplements our approach to SRI, it doesn't supplant it," says Freeman. Three exclusions remain non-negotiable: No company may be involved in the tobacco industry, fail Calvert's weapons screen, or support governments under U.S. and international sanctions for grave human rights abuses.

Half of the roughly 60 holdings in the Large Cap Value Fund meet Calvert's core criteria. For 16 others it considers "enhanced engagement companies," Calvert is doing intense engagement and advocacy to advance their ESG performance. It has also written letters suggesting improvements to the fund's 14 remaining companies that don't meet its core criteria-even proposing a say-on-pay vote for Morgan Stanley shareholders regarding executive compensation.

The new approach "is appealing to traditional SRI investors who in the past didn't have the stomach, tolerance or desire to mix it up with these companies," says Freeman. Calvert also maintains a high level of transparency and accountability. Progress-and lack of progress-against goals is posted on its Web site.

Freeman says a clear win has been enhanced engagement company Newmont Mining's public commitment to revenue transparency legislation. "We choose our (advocacy) objectives carefully; we think they're desirable, realistic and attainable," he says.

For example, Calvert is pressing Dow Chemical, whose comprehensive 2015 Sustainability Goals it finds encouraging, to take more action to remediate the India disaster site it inherited when acquiring Union Carbide. It is encouraging BP Inc. to do more to address alternative energies. Calvert was also recently scheduled to meet with Royal Dutch Shell executives to discuss renewable energy, oil sands, and human rights and environmental issues in Nigeria.

Freeman is quick to note that shareholder advocacy is often a very collaborative effort and emphasizes that "there are no easy wins in this business." Still, he says he expects to see some breakthroughs in 2010.

Calvert may divest from companies that fail to make measurable progress towards ESG goals. But should SRI funds be holding ESG-deficient companies to begin with? FA Green asked others in the SRI community to weigh in on this.

Steve Schueth, president of First Affirmative Financial Network LLC, says it's absolutely accepted. "Light green or SRI light isn't necessarily bad as long as clients understand what they're getting into," he says. This requires having realistic expectations from the start, ongoing communication, and funds that stay true to their defined methodology.

Both Schueth and Patricia Daly, a Dominican Sister of Caldwell, N.J., who has worked in corporate responsibility and SRI for more than 30 years, emphasize there are no perfect companies. Daly, executive director of the Tri-State Coalition for Responsible Investment, thinks it's OK to include those which are still working out ESG kinks. "The vast majority of companies fall into that category," she says.

"The great companies in my mind are ones who see this as a five-, ten-, 15- or 20-year plan," says Daly, who has played a role in forcing General Electric to clean up PCB contamination of the Hudson River and is pushing ExxonMobil to address climate change matters.

"True SRI is sort of a personal preference; there's no one right answer...Ben & Jerry's sold high-fat products; that's how you get the idea everything is gray," says Stephanie Leighton, a co-manager of the Green Century Balanced Fund (assets: $53 million) and a portfolio manager and chief investment officer for subadvisor Trillium Asset Management Corp.

Green Century Balanced Fund started holding Costco Wholesale, whose record on engaging with shareholders has been mixed, in November 2009 after the company agreed to produce its first sustainability report following pressure from Trillium and Green Century Capital Management. Pro-employee policies are another plus, says Leighton.

Trillium holds Tiffany & Co. in its managed accounts because the jewelry manufacturer and retailer has been a leader in mining reform and responsible purchasing practices.  "We try to find leaders managing social and environmental challenges better than others," says Leighton.

"SRI is entering its second generation," says Laura Berry, executive director of the Interfaith Center on Corporate Responsibility (ICCR).  The socially responsible investment community is starting to look more at individual corporate analysis, thanks to greater data availability, and mainstream investors are really starting to look at incorporating social issues, she explains.

"More people are willing to look at a company with challenges, flaws and concerns," says Berry. One example is Wal-Mart, which has its share of labor and human rights challenges but is making meaningful progress in supply chain management and environmental issues. "Investors see it moving in the right direction and they want to be part of that directional shift ...This is not selling out in any way. It's a desire to say 'I want to be invested in most sectors where there is economic activity.'"

The scope of investors interested in pushing companies towards change is also expanding. ICCR, whose members are responsible for 83% of advisory resolutions being filed today, is seeing more mainstream co-filers and more institutional activity, including labor unions and foundations, says Berry. The number of people clicking on ICCR's Web site (www.iccr.org) has also risen ten-fold over the last three years.