Putin Gut Punches ESG InvestingMarch 15, 2022By John StreurPresident and CEO, Calvert Research and ManagementWashington - Governments and corporations are making headlines with a coordinated reaction to Russian Federation President Vladimir Putin's Special Military Action in Ukraine. Western governments and public companies reacted as shocked that violence against people was being carried out by a Russian government that was deeply integrated into global financial and market systems. Now that violence has grown to a war, the west has moved to mobilize the global financial system and markets to fight the missiles and soldiers of the Russian Federation. The pen is certainly more convenient than the sword.Perhaps corporations are also shocked to learn of the human rights violations that have occurred during years of violent conflict in Donetsk and Luhansk and on Ukraine's borders. Human Rights Watch noted that "the full-scale military assault follows eight years of armed conflict in eastern Ukraine that killed thousands, many of them civilians, displaced 1.5 million people, and had already taken a high toll on civilians in the region, from threatening their physical security to interfering with access to food, medicine, education, and adequate housing."Shocked also at the devastation left behind in Afghanistan, now that operating there is no longer safe nor yields the profits available during the United States presence. Shocked at human rights violations in China that is well documented and publicized. Shocked too at the devastation from climate change to the human well-being of poor and underrepresented populations, especially indigenous peoples worldwide. Shocked at the myriad harms done to people, biodiversity and cultures through decades of expansion of corporations' global supply chains into every corner of the world.Rather than being shocked, we know the reality is human rights violations, from technical to atrocious ones, are occurring in many parts of the world. The U.S. Department of State reports on this regularly,1 publishes it online and even provides a handy tool so we can study the high-level categorization of offenses by country and region.We also know the environmental devastation caused by the western world's massive consumption of resources for the past two hundred years, most recently documented in the Intergovernmental Panel on Climate Change's (IPCC) Sixth Assessment,2 which pulls together work across 34,000 scientific studies. Not a secret.Yes, economic development during peacetime can yield advancement of the rights of individuals and advancement of human well-being has occurred at a terrific pace since World War II; however, the foundation looks shaky now that the tide has gone out on peace. And we have not made meaningful progress on stopping the ravages of consumption on the climate and environment.Responsible Investors cannot sit back and simply applaud western corporations' and western brands' highly publicized pullout from Russia; we must hold ourselves accountable for not acting effectively and much earlier. Now is the time for all Responsible Investors to engage with the global human rights community and take seriously the human rights catastrophes occurring throughout the world, even within western jurisdictions. We also must deal with the transition of the global energy system to something that is not dependent on oil in a way that is fair and just to all people worldwide. Responsible Investors must engage throughout the global energy system to ensure a just transition. These were enormous undertakings before the crisis in Ukraine, and are now going to be much more difficult operationally and financially.The Calvert Funds have been a global leader in Responsible Investing since the creation of the Calvert Social Investment Fund in 1982, the first U.S. mutual fund to take an activist stance against the Apartheid regime in South Africa. The tactics included pressuring companies to adopt and implement the Global Sullivan Principles,3 engaging with and divesting from corporations who did not support the anti-apartheid movement,4 pushing the U.S. government to enact legislation and encouraging other investors to understand the terrible impact on human well-being in South Africa from the apartheid regime and act by supporting the anti-Apartheid movement.In August 2001, Calvert became the first U.S. financial institution and one of the first 100 entities of all kinds to sign the newly created United Nations Global Compact (UNGC), which seeks to bring corporations, governments and civil society throughout the world together to drive positive change and address the economic development needs of the entire world in a fair and sustainable manner for current and future generations. Today nearly 20,000 entities have joined the UNGC, but only 53 are from the U.S. finance industry. This is a massive effort geared to drive positive change and create sustainable and fair economic development globally. Today, everyone involved needs to comprehend the importance of the Sustainable Development Goals (SDGs) and act for their comprehensive and fair achievement. Not just for people in free democratic and capitalist societies, but for all people everywhere.Today, taking action to attempt to stop a war or change a regime after people have been killed and lives ruined is a very poor approach that history has shown to be nearly impossible to implement successfully. Nonetheless, this is where we are. Prior efforts failed to gather enough of the global financial system together under the UNGC and actions have been inadequate to drive needed changes to behavior fast enough to avert the ongoing environmental and humanitarian crises occurring throughout the world.In fact, western corporations are doing business within regions and with governments directly and through their global supply chains that are known to be at high risk for exposure to human rights violations, not just in Russia. In some cases, corporations disclose these risks in their regulatory filings, but this practice is not detailed or widespread. And most investors have not heeded the risk even when disclosed.Responsible Investors must take action to create transparency to corporate risk-taking that arises from a company's business activities, including through their supply chains, which exposes investors to human rights abuses and environmental destruction. Then investors can decide if they want to take on that risk, consumers can decide if they want to buy products from companies creating and taking those risks and governments can better create legislation to protect human rights and sustain the environment. We need detailed information, not marketing and branding.The Calvert Funds that follow the Calvert Principles for Responsible Investment had no direct exposure to Russia as of February 28, 2022, and have not owned the oil majors for several years — partly due to the geopolitical risk associated with the fossil fuel industry. Maybe we look better than those investors who had heavy direct exposure, but we are not patting ourselves on the back. Through our extensive holdings of western companies, the Calvert Funds may have indirect exposure to the business activities of those companies in Russia. And there may be exposure to human rights violations through supply chains globally; there is simply not enough detailed information from the companies themselves to know for certain where that exposure may be or how extensive it is. And while following the Calvert Principles may limit investment in fossil fuel assets, the Calvert Funds own companies that depend on and burn fossil fuel as the energy source for the vast majority of their energy needs.What is needed today is for Responsible Investors to take pragmatic action consistent with the UNGC and the SDGs. In the immediate term we must act to mitigate the human rights disasters occurring not just in Ukraine, but in Afghanistan and throughout virtually every region of the world. Millions of people need food, water, energy, safety, medicine and protection of basic human rights. We also must create the transparency required for consumers, investors, corporations and governments to understand how specific companies are impacting the environment and human well-being. Governments have failed to enact laws or even create clear guidance to accomplish this transparency, as the very corporations they seek to influence, lobby and push back against this critical action, and government officials lack the political will to push reforms through. Investors like Calvert go to great lengths in an attempt to discern the factors corporations refuse to disclose. We cannot wait for the government process to change; we must use every advanced data science tool available to create the transparency that corporations refuse to provide. Longer term, we can push governments to evolve, but they have failed to lead and we cannot wait.Bottom line: Responsible Investors themselves must offer leadership and provide a pathway for investors to make decisions now that will address the immediate and near-term needs of the people impacted and most in need. Longer term, we can fight to evolve the entire system; today we must work pragmatically. In time, transparency into the details of corporate and government behavior will facilitate greater trust among stakeholders globally, facilitate accountability and drive change. Today, we need to get food, water, energy, shelter, medicine and protection of basic human rights to the billions who are and will be at high risk — including death that results from our unwillingness to properly address these issues faster and more effectively for decades past.U.S. Department of State, "2020 Country Reports on Human Rights Practices," March 31, 2021.Intergovernmental Panel on Climate Change (IPCC), "Sixth Assessment Report," February 28, 2022.In 1977, the Sullivan principles were developed to apply economic pressure on South Africa to protest against its system of apartheid. In 1999, the Global Sullivan Principles expanded the corporate code of conduct to increase the active participation of corporations in the advancement of human rights and social justice at the international level."International Convention on the Suppression and Punishment of the Crime of Apartheid," adopted by the General Assembly of the United Nations on November 30, 1973.