Environment, sustainability, governance now vital business considerations

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Glenn Freeman: In this edition of "How we invest your money" I'm speaking with John Streur, the CEO of Calvert Research and Management, which is one of the few fund managers out there that focuses entirely on selecting companies that are ESG compliant.

John, thanks very much for your time today. Now, first up, has ESG investing shifted from being something of a peripheral area to a core area of focus for companies like yourselves?

John Streur: I think ESG has really transformed, as you say, from a niche consideration that a few fund managers thought about to something that is relevant to all investment decisions. The reason that it's really transformed is because operating companies around the world, small companies and large multinational corporations are dealing with the environmental impacts of their companies as well as the social outcomes that their companies are creating. They are looking at these as potential financial risks. They are also looking at these as competitive opportunities to differentiate themselves either as an employer, as a competitor, as a seller of product.

So, it has really transformed in terms of what's happening at companies. Therefore, most investment management firms are trying to take this information into consideration as they make investment decisions and work to create competitive returns. Today, there are a few firms like Calvert, which is completely focused on analysing companies this way and using the information to produce competitive results. But there are a lot of companies that do everything that have tried to add an ESG sleeve to what they do.

Freeman: Now, how successfully can fund managers be both traditional managers and be ESG focused? Is this something that's possible in your view?

Streur: Sure. As an investment management organisation, ESG represents an opportunity to innovate, to lead, to create research pathways that have not previously been created. It's a very big contribution that we can make to the way our capital markets work and I think that we find that our people are driven by the mission to help create positive progress. They want to make a contribution to the way the global capital system works. They also want to make a contribution to create positive progress in terms of the environmental outcomes and social outcomes that companies create.

I think it's very hard for an organisation to split itself and have a team of people doing this amazing innovative work and then to have other people who are dealing with the old way of doing things. So, it's a mission, it's a purpose, it's why people join a firm like Calvert. And so, we find the ability to focus 100 per cent of our time and energy on this innovative approach to be very attractive and we think it's hard to do a little of this within the context of a bigger organisation.

Freeman: Now, John, what about costs? Traditionally, ESG investing was something viewed as more expensive and that was something of a turn-off for investors.

Streur: It's a research-intensive approach and we also bring corporate engagement to the table. So, there is a lot more to ESG investing than there is to non-ESG investing. However, at Calvert, we price our products competitively. Morningstar tells us that our funds are below median expense ratios in many of our implementations. So, today, I think that the reality is that an ESG manager or a responsible investment manager, like Calvert or like anybody in this space, needs to look at the competition as the mainstream investment houses. Therefore, our products are priced competitively with the non-ESG firms. Our clients want competitive performance. They also want to make the world a better place and deal with these ESG risks and they expect to pay the same price as everybody else.

This report appeared on www.morningstar.com.au 2021 Morningstar Australasia Pty Limited

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