U.S. Elections in the Spotlight: Responsible Investing Transcends Politics October 16, 2024By Jade HuangChief Investment Officer, Co-Head of Applied Solutions, Calvert Research and ManagementAs the 2024 U.S. election approaches, Calvert managers and analysts are increasingly asked how responsible investing will be impacted under different election outcomes. We see marked differences in how the candidates and parties approach issues at the heart of responsible investing—climate and energy, diversity, equity and inclusion (DEI), and income inequality. In our view, these core issues will remain relevant to investors regardless of election outcomes. At Calvert, responsible investing means using financially material information related to ESG risks and opportunities to identify companies that are better positioned to perform over the long term. Our experience as a responsible investor shows that financially material topics are evergreen because they relate to value creation and risk management, which are relevant to investors regardless of the political climate. While political debates may shape short-term policy directions, an investment program that incorporates analysis of material ESG issues aims to improve business resilience and foster innovation, not exclude businesses or interfere in their operations.Key responsible investing trends to watchWhile we have identified many financially material ESG issues that impact companies, we are observing three cross-sector trends that have the potential to create risks and opportunities across domestic and global capital markets:Climate transition: The reality of the climate crisis is fraught with risks as well as opportunities for companies and investors. The frequency and intensity of wildfires, hurricanes and heat waves are increasing worldwide. Insurance giant Munich Re calculates that natural disaster losses totaled US$250bn in 2023 alone.1 At the same time, global energy demand is rising for the first time in decades,2 along with the need for more sustainable energy sources and supportive infrastructure. As demand outpaces supply, governments, communities and companies will need to scale emerging technologies to plug the gap. Across the entire value chain—from essential minerals used in clean energy technologies, to upgrading power grids, to more energy-efficient HVAC systems—every sector is impacted by the climate transition. Global demographics: Factors like aging populations, declining birth rates, migration and educational attainment are causing significant demographic shifts. Many developed countries are experiencing slower population growth and a greater proportion of elderly citizens, leading to economic and health care challenges. At the same time, developing regions are seeing higher population growth. Migration patterns are also changing, with more people moving from rural to urban areas or across borders in pursuit of better economic opportunities and stability. Educational attainment is on the rise as well. Rising higher education rates among women and minorities in the U.S. are changing the face of labor participation and economic advancement, along with the makeup of corporate boards, leadership and capital ownership. These trends have broad implications for companies, affecting how they attract, retain and incentivize employees, while also challenging them to better manage relationships with clients, consumers and other stakeholders.The Inflation Reduction Act (IRA): The IRA, introduced by the Biden Administration in 2022, aims to reduce the federal government budget deficit, lower prescription drug prices, and invest in domestic energy production while promoting clean energy.3 Companies along the clean energy value chain stand to benefit from the IRA, but the degree to which we see these incentives and investments come to fruition will depend on the balance of power in Congress. We believe the IRA is unlikely to be fully repealed due to its scale and bipartisan support for certain incentives and energy-related investment, but a Republican win may lead to modifications or rollbacks in certain provisions.The climate transition, changing demographics, and the legal and regulatory environment are material to companies and investors because they can significantly impact a company's long-term financial performance and risk profile. Assessing a company's fundamentals, along with how it engages employees, attracts and retains talent, and fosters an innovative culture, are considerations that deepen investor research. A focus on supply chain resilience and brand management further strengthen this analysis. These are all areas that have the potential to directly impact the financial position of a company over the long term. Bottom line: At Calvert, responsible investing means investing for the long term, which generally means considering the interconnectedness of people, economies and the environment, globally. Political changes present new dynamics, but the core issues remain the same and that is why responsible investing will remain relevant and necessary.Ultimately, Calvert, along with other responsible investors, will continue to impress upon corporations the importance of aligning long-term financial performance with the successful management of material environmental, social and governance issues. Responsible investors will pursue ESG-related issues when they are financially material to long-term value creation and risk management regardless of the political backdrop. While the U.S. election may alter the political landscape, it will not deter our goal of helping companies successfully adapt to global challenges, in support of long-term value creation and positive societal outcomes. 1 Munich Re, 'Natural disasters of 2023,' January 2024.2 IEA, July 2024.3 U.S. Department of Energy, September 2023.