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By Anthony EamesDirector of Responsible Investment Strategy, Calvert Research and Management

Washington - Recently, we have seen press coverage questioning the efficacy of environmental, social and governance (ESG) investment approaches and whether they hinder a fiduciary's duty to generate the best possible returns for investors. In fact, ESG investing is not homogeneous. Firms can and do define and execute their approaches in different ways, making it difficult to assess ESG performance "as a whole."

At Calvert, we are first and foremost a Responsible Investor. While inclusive of ESG considerations, our Responsible Investing approach is more holistic, encompassing proprietary research, a nuanced assessment of ESG factors that includes financial materiality, and corporate engagement. Our core, long-term philosophy looks at how a company impacts the environment and people — and whether that is likely to enhance potential returns or harm them.

As with any investment strategy, Responsible Investing — and ESG approaches — will have periods of over- and underperformance over the course of market cycles. Today, the Russia-Ukraine war is delivering blows to markets, supply chains, inflation and energy prices as well as creating a humanitarian crisis.

Russia-Ukraine war impacts. Since the end of February, when Russia invaded Ukraine, oil prices have shot up to levels not seen in years, placing further inflationary pressure on the price of virtually anything that needs to be transported, from airline passengers to food and consumer goods. In turn, energy sector returns have soared.

Energy dominating the performance cycle. Skyrocketing energy prices have had an outsized impact on market returns. ESG-focused funds — which generally have little or no exposure to energy companies that may fall short on certain environmental standards — were disproportionately affected by these price moves. At Calvert, many energy companies do not align with the Calvert Principles for Responsible Investment (Calvert Principles) and are not eligible to be owned in our portfolios.

On the flip side, the Russia-Ukraine war has underscored the need for investment in renewable energy, as the geopolitical risk of fossil fuels — and Europe's dependency on Russian oil — has been brought front and center.

Bringing Pressure to Bear

We believe a key role of Responsible Investing is to find ways to use the power of markets to create positive change for the greatest number of people, including underrepresented populations worldwide. Today, there is a direct connection between these principles and the mobilization of the world's financial tools to confront Russian aggression and support Ukraine.

Now is a critical time for responsible investors like Calvert to engage with the global human rights community and seriously address human rights catastrophes occurring in Ukraine and throughout the world. We must 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. These were enormous undertakings before the crisis in Ukraine and are now going to be much more difficult operationally and financially.

Calvert Principles in Practice

Calvert's Principles-based approach is designed to meet the needs of return-seeking investors while meeting global ESG challenges. By combining our proprietary research with structured engagement, we work toward building sustainable, long-term value in both our clients' portfolios and the companies in which we invest. This has generated results, as evidenced by Calvert's winning the Refinitiv Lipper Fund Award for "Best Overall Small Fund Family Group Over Three Years" in both 2020 and 2021.1

Bottom line: Calvert's Responsible Investing approach has a long-term focus and dual mission of delivering shareholder value while promoting positive societal change. A Responsible Investing innovator for nearly 40 years, we feel confident that the proper consideration of ESG issues, along with focused engagement efforts, can lead to stronger investment results for our clients and shareholders.

1. As of 2020 and 2021. The Refinitiv Lipper Fund Awards, granted annually, highlight funds and fund companies that have excelled in delivering consistently strong risk-adjusted performance relative to their peers. Small fund family groups will need to have at least three equity, three bond and three mixed-asset portfolios. An overall group award is given to the group with the lowest average decile ranking of its respective asset class results based on the methodology described above. The Refinitiv Lipper Fund Awards are based on the Lipper Leader for Consistent Return rating, which is a risk-adjusted performance measure calculated over 36, 60 and 120 months. The fund with the highest Lipper Leader for Consistent Return (Effective Return) value in each eligible classification wins the Refinitiv Lipper Fund Award. For more information, see lipperfundawards.com Although Refinitiv Lipper makes reasonable efforts to ensure the accuracy and reliability of the data contained herein, the accuracy is not guaranteed by Refinitiv Lipper. Investing entails risk and there is no assurance that Eaton Vance will achieve profits or avoid incurring losses. All investments are subject to potential loss of principal. Past performance is no guarantee of future results.

From Refinitiv Lipper Awards, ©2022 Refinitiv. All rights reserved. Used by permission and protected by the Copyright Laws of the United States. The printing, copying, redistribution, or retransmission of this Content without express written permission is prohibited.