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.

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