Impact Blog
ESG impact metrics: The next step

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 John Streur, President and CEO, Calvert Research and Management

      Washington - In Calvert's view, reporting on the impact that any investment portfolio has on the environment, individuals and society is the next major step in the ongoing evolution of environmental, social and governance (ESG) investing. Engagement and impact metrics allow investors to go beyond the balance sheet to understand more fully what an investment offers.

      While the lack of uniformity for measuring and reporting ESG metrics across the investment industry is a challenge, groups like the Sustainability Accounting Standards Board (SASB) and UN Sustainable Development Goals (SDGs) are establishing industry norms.

      Today, buyers of many types of consumer and industrial products have made it clear they want to understand the impact of the entire lifecycle of a product before making a purchase. Buyers may ask how the product was produced, if it is energy efficient, if it can be reused or recycled rather than placed in a landfill, what were the labor standards of the supply chain, are the ingredients toxic or healthy, and so on. For example, we see consumers questioning the use of single-use plastic items and their impact on the environment, which has helped influence some companies to announce plans for the reduction or elimination of these items.

      It is no surprise that investors want the same type of information on the companies included in their portfolios, including details on their carbon emissions, how they manage their supply chains, how they treat their employees, whether their products are energy efficient and whether their products are environmentally-friendly, among many others.

      Along with consumers, investors are expecting to see this information at the individual company level. That desire for understanding is expanding to an expectation that sets of ESG metrics are available at the portfolio level as well. It is one thing to know that a portfolio produced a certain financial return; it is an entirely different matter to understand the true impact of the portfolio relative to environmental and societal impacts.

      A look at Calvert's impact metrics

      At Calvert, we report on the impacts of investment portfolios based on what our research leads us to believe are material, insightful metrics from a social and environmental and perspective, which accompanies traditional financial metrics. For example, we recently introduced an Impact Tool that shows the relative carbon emissions, water consumption, toxic emissions and tobacco exposure for certain Calvert portfolios compared with a relevant benchmark index. We are including these metrics on certain fund fact sheets and expect to continue to roll out additional metrics on more portfolios throughout the year.

      A ripple effect

      Across the mutual fund industry, we believe this standardization of uniform measuring and reporting standards for financial services will likely take three to five years to fully develop. As investors see the ESG risks and impacts of their portfolios quantified, we believe they will see material differences between high-quality ESG portfolios and those managed without ESG or with weak ESG inputs. In our view, that will drive demand for the information, hasten the development of impact reporting and create another level of transformation for ESG investing.

      This should also have a positive effect on shareholder engagement. We believe increased transparency and reporting will likely encourage more concrete and positive outcomes. The more people know what to look for, and the easier it becomes to measure progress, the more likely we will be able to influence the change needed.

      Much like consumers may consider the waste a business creates when determining what kind of coffee to buy, we believe these impact metrics will help investors consider ESG factors when constructing their portfolios.

      Bottom line: We see reporting ESG metrics as the next, critical step in the evolution of ESG. At Calvert, we are moving this goal forward, reporting how our investment portfolios are doing with material, insightful metrics from a social, environmental and financial perspective.