Impact Blog
Harnessing the competitive power of ESG investing

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 Anthony Eames, Director of Responsible Investment Strategy, Calvert Research and Management

      Boston - These days, there's lots of talk of ESG (environmental, social and governance) investing going mainstream. Old beliefs about limited fund options and ESG's performance penalty are being put to rest. As ESG research and data proliferate, more investors are looking at ESG factors for material insight into a company's long-term prospects.

      Competitive with peers

      Numerous studies provide analysis dispelling the myth that ESG investors must necessarily endure a "performance penalty." For instance, Morningstar's 2018 Sustainable Funds U.S. Landscape Report noted, "in the first negative year for equity markets since the financial crisis, sustainable equity funds held up better than their conventional peers." The report revealed that for the 2018 calendar year, more than half of U.S. sustainable funds - 63% - were ranked in the top half of their respective Morningstar categories.1 This was the second year in a row that sustainable funds outperformed, according to Morningstar. In 2017, 54% of sustainable funds ranked in the top half of their categories.2

      Furthermore, the Morningstar report noted that 2018 was the third consecutive year of record flows for sustainable funds, despite unfavorable market conditions. Average annual net flows in 2013-18 were 30 times greater than in 2009-12.

      Barron's also noted these performance trends in its January article, "The Top Sustainable Funds." For the third year in a row, Barron's conducted a survey of the mutual funds in the Morningstar database, and found that, "stockpickers who gravitated toward sustainable companies beat the broad market in 2018, just as they did in 2017 and 2016."3

      A meta-study on ESG performance from Deutsche Asset Management and the University of Hamburg found, overall, a positive relationship between ESG factors and corporate financial performance, and that relationship has been steady over time.4

      Not all ESG strategies are created equal

      Certainly, any investment strategy can underperform at various points in time. But, as noted above, there's a significant body of research showing responsible investment strategies are, at the very least, competitive with their non-ESG peers. Beyond that, ESG factors are increasingly seen as important metrics for analyzing risks and opportunities, alongside traditional financial measures, such as cash flow and earnings.

      When it comes to ESG investing, it's important to realize that not all ESG factors and strategies are created equal. Calvert Research and Management uses its research to offer both passive and actively managed ESG strategies - a one-stop shop where investors of all stripes can find the approach that works best for their needs. We identify metrics for evaluating ESG factors that we believe are materially linked to company performance, with input and alignment with the UN Sustainability Development Goals (SDGs). We believe that combining this work with traditional bottom-up security selection for active strategies has as good a chance of matching or beating the market as any other approach.

      Bottom line: We believe evidence is growing that ESG strategies can deliver competitive performance - as well as provide insight into areas of material investment risk and opportunity.