Q&A: Calvert Investments chief talks sustainable investing

AP News
|
Posted: Oct 08, 2015 5:05 PM

NEW YORK (AP) — Responsible investing isn't just for hippies wanting to avoid stocks of tobacco or alcohol companies anymore.

The industry has undergone a broad shift, where the focus is on finding companies who are leaders in protecting the environment, reducing income inequality and promoting good corporate governance. Not because it's a good thing to do, but because it makes good business sense, says John Streur. He is president and chief executive of Calvert Investments, one of the nation's largest companies focused on sustainable investing. Its mutual funds focus on everything from large U.S. stocks to high-yield bonds to emerging-market stocks.

Streur was recently in New York for a United Nations summit, where world leaders set new goals for sustainable development. Earlier, Pope Francis told diplomats at the United Nations that there is a "right of the environment." Streur explains why he sees these as just the latest examples of an accelerating embrace of sustainable development, and investing.

Q: How up-to-speed were the people you met with at the UN?

A: We had a working session around the hoped-for implementation of the sustainable-development goals that were passed. And (German Chancellor) Angela Merkel was there. (Facebook CEO) Mark Zuckerberg was there. Paul Polman, Unilever's CEO, was there. And our surprise guest for lunch was Bono (the singer of U2). And Bono, boy, was he up to speed. He talked about the Dodd-Frank regulations. It was great.

Q: Politicians may be embracing this more, but are investors still leery? Is there a belief that a "responsible" company will have lower returns than another one?

A: Yes, I think there's a lot of that. There's a lot of outdated thinking from an investor's point of view but, interestingly, much less so from the CEO's or big company's point of view. I think that's a fascinating dichotomy.

The CEO of Novozymes, which is a world-scale biotechnology company, his compensation is now directly linked to their achievement of their corporate sustainability goals. Yes, they have to turn a profit to get a bonus, but the size of the bonus is dependent on their achievement of their sustainability goals. No board of directors would link executive compensation to that unless they were very confident that it served the interests of the corporation.

Q: Novozymes is a European company. Do you think something like that would be popular in the United States?

A: Yes, I think that's going to happen. Because it makes sense. Do you think Volkswagen wishes they had linked their CEO's compensation to the achievement of proper environmental, social and governance standards? I'd say the answer to that is yes.

Q: What's behind the shift? Why should CEOs and boards care about the environment? Will it affect their stock price?

A: Unilever knows they need to secure access to agricultural products for the long term, because those are essential raw materials for the consumer products they manufacture. So they have a big effort both to source sustainable products and to teach people how to farm sustainably, because that secures their supply chain.

Other companies are figuring this out and saying, "Oh my gosh, we've been getting the cheap stuff, which is unsustainable. What are we going to do in 10 years if resources tighten up? What happens to us if we're required to source sustainably?"

The impetus around sustainable development is asking management to simply do a great job managing these parts of their business, as well as managing the financial side of the business. It's simply the next step in the evolution of capitalism. We need this to work.

Q: Have you found that companies are more willing to listen to you, when you make shareholder proposals to change how they operate?

A: Yes, because the way we engage today is different from the way that we engaged 10 years ago. We now go to a company and say, "We think you should do this because it's going to be helpful to managing your relationship with the environment and society, and it makes financial sense, and we've got some data to prove it."

That's different from coming in and shaking your finger and saying, "You should be a better citizen."

Q: That's how it happened 10 years ago?

A: Yeah. It's a numbers business, so we've got some metrics and things to talk about.

Q: Any misconceptions about responsible investing?

A: The biggest one is that responsible investing is avoiding "sin stocks." There are still some folks who do that, but responsible investing today is a much more sophisticated approach that integrates with the capital markets. It doesn't fight them.

Just like we want to find out who can really put capital to use and get a good return on it, we want to find out who can do that without creating risks for society and future risk for shareholders.