Impact Blog
Breaking down the corporate silos to advance corporate sustainability

The views expressed in these posts are those of the authors and are current only through the date stated. These views are subject to change at any time based upon market or other conditions, and Calvert disclaims any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for Calvert are based on many factors, may not be relied upon as an indication of trading intent on behalf of any Calvert fund. References to individual companies for Engagement or Research purposes are provided for illustrative purposes only and may not be representative of the results of all of Calvert’s engagement efforts. The discussion herein is general in nature and is provided for informational purposes only. There is no guarantee as to its accuracy or completeness. Past performance is no guarantee of future results.

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      By Stuart Dalheim, Shareholder Engagement Manager, Calvert Research and Management

      Washington - Corporate sustainability, environmental health and safety (EHS) and corporate social responsibility (CSR) professionals know that their work is increasingly important. The business case for corporate responsibility continues to strengthen and a cross section of stakeholders - from the C-suite and board of directors to customers and employees - are propelling the field forward.

      Investors, in particular, have emerged as a primary driver. Interest in corporate sustainability or environmental, social and governance (ESG) is increasing, as highlighted by the growth in signatories to the Principles for Responsible Investment.1

      Calvert Blog 9-25 PRI chart

      With growing interest comes greater demand for ESG information, which investors use to conduct research and allocate capital. An EY survey found that 68% of institutional investors reported that a company's non-financial performance frequently or occasionally played a pivotal role in investment decision-making in 2016, up from just over 50% in 2015.2

      Investors also use ESG information in shareholder engagement, which is on the rise. PRI, an international network of investors working to increase the understanding and implementation of ESG factors, reports that the volume of assets managed with explicit commitments to engage on ESG grew 41% between 2014 and 2016.3

      Disclosure grows significantly - effectiveness not so much

      Companies recognize the rise in demand and the need to communicate to investors, and the number of companies reporting has grown. However, the strength of their reporting and engagement with shareholders on sustainability matters is not yet meeting investor needs, because too many companies are not conveying information about their ESG activities in ways that demonstrate the connection to business strategy, value creation and risk mitigation.

      A lack of regular and focused interaction between a corporation's sustainability officer, investor relations and corporate secretary functions likely means that the strategic value of the ESG program is being left on the table. Are representatives from these different functions working together to ensure that ESG priorities are anchored to business strategy and that public reporting clearly articulate the relevance to the success of the firm? If not, ESG initiatives may not be value-creating, and stakeholders -- including investors -- may question the relevance of the work:

      • Ill-defined and not connected to business strategy, leading investors to question management and board quality or to write off ongoing sustainability work as irrelevant to business success.
      • Not clearly communicated to investors in ways that provide investment-relevant information, meaning that its value is underappreciated.
      • Lacking ambition, and therefore being too basic to demonstrate its value to internal stakeholders inside the company.
      • Not answering the right questions, handing power over to ratings firms or others who rank the company, and inviting shareholder proposals or governance challenges.
      • Less likely to attract long-term shareholders with time horizons better aligned with corporate sustainability initiatives, leaving companies with shareholders more focused on the short term.

      Calvert's approach

      Through its dialogue with companies, Calvert seeks to understand whether and how companies with corporate sustainability, EHS and CSR professionals foster this regular engagement between the investor, corporate governance and sustainability sides of the house. We make the case that companies that do so can reap a variety of benefits including a sustainability program that aligns with business strategy and improved ESG reporting that provides investment-relevant information.

      Bottom line: Companies are responding to market demands for increased ESG disclosure, but the strength and effectiveness of this reporting is not yet meeting investor needs. Calvert works with companies to build sustainability programs that contribute to achievement of business strategy and to improve the disclosure and reporting that demonstrates this alignment.