During my first week at Calvert Investments as President and CEO in April 1997, I received a desk plant as a congratulatory gift from a former colleague. Seventeen years later, that plant is literally a tree, dominating a special corner of my office. It is a daily reminder of my personal journey at Calvert, but also of the flourishing of sustainable and responsible investing over the past several decades. What began as a niche approach is more and more a mainstream investment strategy.
As an industry, we undoubtedly play a major role in promoting changes that will help shape a global green economy, add more diversity in the highest echelons of corporate governance and serve as the watchdogs of human rights in the business context.
But as we think about both where we’ve come from and where we’re going next, it’s critical to balance our attention to these major global movements with some of the day-to-day tasks within the industry that are necessary to advance these global objectives.
Watching our Jargon: What we call it matters
Words are powerful tools in shaping perceptions. When I announced my intention to step down as president and CEO of Calvert Investments at year-end, I purposefully chose not to use the word “retire.” It simply wasn’t consistent with my vision for the next phase of my life and career.
As leaders in the Sustainable and Responsible Investment (SRI) industry, we need to pay close attention to our lexicon. The proliferation of terms and industry jargon that has built up over time can often be frustrating to those of us doing the work. But more importantly, our industry-specific language can be truly confusing to average investors and off-putting to many financial advisors. As an industry, we need to better clarify and agree on a common set of terms associated with the spectrum of options that represent the entire sustainable investing continuum.
The confusion of our lexicon can range from misuse to misinformation. I mildly cringe when I hear someone using the term “socially responsible investing” when I might prefer “sustainable and responsible investing.” But my blood pressure skyrockets when a mainstream asset manager uses the term “ESG integration” where I feel it’s wholly unwarranted.
When words that describe our industry are perceived as confusing or outdated, we need to change them. When words such as “impact investing” are embraced by the media but twisted to exclude whole elements of our industry, we must defend them. Implementing a clear and consistent lexicon for our growing industry is overdue.
In the early years of the sustainable investment industry, most companies did not recognize sustainability as a materially relevant concept. As time passed, some companies warmed to the concept. Today, the paradigm has shifted again and many companies embrace sustainability. The Governance & Accountability Institute reported that 72% of the S&P 500® published sustainability reports in 2013; this is up from 52% in 2012 and from 20% in 2011.
This shift in the corporate landscape has required asset managers to evaluate and evolve approaches to how we think about the investable universe. Exclusionary investing will always be a part of our industry – particularly for those individuals who feel SRI is the only way in which they want to participate in the capital markets – but new inclusionary and integrated approaches are also valid.
One area that continues to be a hallmark of a true sustainable asset manager is advocacy and engagement. We need to get better at demonstrating how we use our deeper ESG knowledge of companies and our interactions with corporate stakeholders to influence corporate behavior change. While we work to create more sophisticated portfolio approaches, we need more sophisticated ways to measure these impacts as well.
Shifting paradigms offer opportunities. We may even get to reinvent ourselves, as I will do next year. I will remain as Chair on the Board of Directors for Calvert Investments. I will also start my new role as Founding Chair of the Calvert Institute, which will contribute research to support the continued growth of the field of sustainable investing.
Connecting with millennial investors
Findings from Calvert’s most recent Brand Health Study (conducted Q4, 2013), support much of what July’s GreenMoney Journal’s focus on millennial investors discussed. But one finding particularly exposed a growth opportunity. Financial advisors and their clients (i.e., investors) are not on the same page regarding sustainable investment. This disconnect is evidenced by the fact that 82% of advisors reported waiting for clients to raise the topic, while 72% of clients indicated they are waiting for their advisor to initiate it.
I believe advisors may be hesitant to bring the topic up because they hold somewhat outdated perceptions of sustainable investing. Advisors indicated that the number one reason they would consider sustainable investing was “to be consistent with my client’s values (82%).” Yet investors split their top reason for choosing sustainable investment between: an opportunity for strong investment performance (50%), and to diversify the portfolio (50%).
These findings suggest that we, as an industry, are still viewed by financial advisors as not focused enough on financial outcomes. Yet it’s no surprise that clients have let go of that perception and look to sustainability factors as drivers of better portfolio performance. This is demonstrated most strongly right now by the two ends of the spectrum – highly sophisticated institutional investors and relatively new investors – the millennial generation.
Our Calvert brand study also confirmed that younger investors, specifically under the age of 35, are highly receptive to sustainable investing. They are more than twice as likely to invest and 60% more likely to have researched/inquired/considered investing in a sustainable mutual fund.
I have a close personal connection with the millennial generation. My two daughters are part of that demographic. As I think about how I can guide the new Calvert Institute to make meaningful contributions to the growth of our industry, I am so motivated by younger investors, whose awareness of environmental issues and innate perspectives on inclusion and diversity will guide their investing choices and make our field even more relevant.
Supporting and advancing women in leadership
As I prepare to leave my CEO position at Calvert, I can’t help but reflect on my legacy. I am very proud that it includes the Calvert Women’s Principles®, celebrating its 10th anniversary this year. These principles are the first global code of conduct empowering, advancing and investing in women worldwide. The Women’s Empowerment Principles, based on our Calvert principles, were developed in partnership with the United Nations Development Fund for Women and today have been actualized through the UN Global Compact with more than 700 companies signing on to support women on a global basis.
Gender and ethnic diversity is well represented on Calvert’s boards, and throughout all levels of the organization. We wouldn’t have it any other way. Unfortunately, however, many companies have been painfully slow to promote women and include them on their board of directors. As I move into the next phase of my career, I am eager to throw my hat in the ring and serve on more boards, helping to refute the objection that there just aren’t enough qualified women to fill seats on public company boards.
As sustainability devotees we should applaud SRI’s successes large and small. But the central premise of our industry seems to be “there’s always more to do.” As we work together over the coming years to solve some of the large global challenges we face, we need to not lose sight of the seemingly small issues that can also help propel our industry forward and expand our reach to individual and institutional investors.
Calvert Investments is a leading investment management company using sustainability as a platform to create value for investors. Serving financial advisors and their clients, retirement plans and insurance carriers, and institutional investors, the company offers a broad array of equity, bond, and asset allocation strategies, featuring integrated environmental, social, and governance (ESG) research and corporate engagement. Strategies are available through mutual funds, sub-advisory services, and separate account management. Founded in 1976 and headquartered in Bethesda, Maryland, Calvert Investments had more than $13 billion in assets under management as of 7/31/14.
For more information visit the Calvert website – www.calvert.com