Tag: Impact Investing

Every year, the message becomes clearer. Diversity is just good for businesses that embrace it – and bad for those that don’t.

By now, many companies understand that a diverse workforce can enhance innovation and in turn profitability. Many are also realizing the reverse is also true. As research indicates, companies with less diversity tends to correlate with those that may underperform. One recent study from McKinsey & Co. found companies with executive teams in the top quartile for gender diversity were 25% more likely to have above-average profitability than companies in the bottom quartile.¹

Moreover, the same McKinsey study found companies in the bottom quartile for both gender and ethnic diversity to be 27% less likely to achieve above-average profitability. This may be because such firms face a number of business risks, including acquiring and retaining the best talent, and creating an environment where that talent can achieve optimal productivity.

Women Move Markets

Calvert’s own research, available on our website (www.calvert.com), shows that the number of women in named executive officer (NEO) positions has meaningful correlation with equity performance, as does the number of women on corporate boards. We found that U.S. large-cap companies with at least four women on the board outperformed the most when compared to those with less than four women board members. For the U.S. small-cap equity market and non-U.S. equity markets, we found the current tipping point for a positive performance correlation to be at least two women on corporate boards.²

In short, companies with a more diverse workforce, including more women in executive roles and in the board room, stand to benefit from a range of financial, social and reputational advantages.

As McKinsey and others report, companies with a diverse workforce are beating their less-diverse counterparts in terms of higher innovation, better employee engagement, improved reputation and decision-making, as well as performance. We see every reason for this trend to accelerate in 2022 and beyond, as responsible investors increasingly recognize that driving capital to companies with good diversity practices is a sound business decision.

Gains in 2020, More Work to Be Done

However, we still have work to do to achieve true gender parity in corporate America. McKinsey’s updated report, “Women in the Workplace 2021,” found that in company C-suites, fewer than one in four leaders is a woman, and just four percent are women of color.³ It noted that “in spite of the challenges of the COVID-19 crisis, women’s representation improved across all levels of the corporate pipeline in 2020.” However, pervasive burnout and dropout of women from the workforce during the pandemic are threatening progress. Significant gaps also persist, particularly for women of color, who are losing representation at every rung of the corporate ladder. The study states that from entry level to the C-suite, the representation of women of color drops off by more than 75 percent and that “as a result, women of color account for only 4 percent of C-suite leaders, a number that hasn’t moved significantly in the past three years.”

Taking some of these insights into account, Calvert has built a diversity factor that looks at a number of different criteria, including the number of people of diverse backgrounds on board, diversity on executive and management teams, and diversity demographics company-wide. But those are not the only factors we consider to be relevant or which we look at. An inclusive culture that harnesses the benefits of diversity is also very important, as is how companies are managing their human capital more generally. A culture that promotes all people’s best thinking is necessary to take full advantage of diversity’s benefits. Calvert recently launched a series of Diversity, Equity and Inclusion investment strategies that leverages this proprietary factor to identify companies demonstrating leadership and improvement in their diversity practices and inclusive workplace cultures.

Engagement Pushes Companies Forward

Despite the growing importance of diversity, it sometimes can be difficult to get the data necessary to evaluate a company’s performance in this area, particularly across workforce levels. Our engagement team has written to 100 of the largest companies in our portfolios, asking them to publicly release their EEO-1 reports. These reports provide details about the company’s workforce, broken down by several racial and ethnic categories and by gender at each of 10 professional levels. Companies of a certain size are required to disclose this information to the US Equal Employment Opportunity Commission, but are generally are not required to release this information publicly except in certain circumstances, such as a lawsuit.

When we began this project, 18 of the 100 were already publicly releasing their reports. For the others, we asked for a meeting with company management to allow us to explain why we think doing so is important. We have also reached out to other investors to encourage them to support this initiative and to coordinate with those that are already committed to the issue.

As of November, we have received responses from more than three quarters of the companies, and a total of 80 of the largest 100 companies now have agreed to release their EEO-1 reports. We will continue our dialogue with these companies to ensure that they follow through on their commitments.

Calvert will continue its decades-long efforts to push this process forward, using our research and engagement teams’ insights to give companies the business case for improved diversity and engaging with them to find the best way forward.

Article by Emily Chew, Chief Responsibility Officer for Calvert Research and Management; and Jade Huang, Director of Applied Responsible Investment Solutions for Calvert Research and Management.

See their biographies below.

This material is presented for informational and illustrative purposes only and should not be construed as investment advice, a recommendation to purchase or sell, or to adopt any particular investment strategy. This material has been prepared on the basis of publicly available information, internally developed data and other third party sources believed to be reliable. However, no assurances are provided and Eaton Vance has not sought to independently verify information taken from public and third party sources. Information contained in this material is current as of the date indicated and is subject to change at any time without notice. Future results may differ significantly from those stated, depending on factors such as changes in the financial markets or general economic conditions.

Calvert Research and Management is part of Morgan Stanley Investment Management, the asset management division of Morgan Stanley. Eaton Vance Management is an SEC registered investment advisor and is also part of Morgan Stanley Investment Management, and is responsible for issuing this material.

Article Writers Biographies: 

Emily Chew is the executive vice president and chief responsible investment officer of Calvert Research and Management, which specializes in responsible and sustainable investing across global capital markets, and part of Calvert’s senior management team. She is responsible for the continued development of Calvert’s research, engagement and stewardship functions. She joined Calvert Research and Management in 2021.

Emily began her career in the investment management industry in 2011. Before joining Calvert Research and Management, she was the global head of sustainability for investment management at Morgan Stanley Investment Management (MSIM), and she currently co-chairs MSIM’s Sustainability Council. Previously, she was global head of ESG research and integration for Manulife Investment Management, head of Asia-Pacific ESG research for MSCI Inc. and a capital markets lawyer with Baker & McKenzie in Melbourne, Australia, with a focus on funds management, capital raisings and REITs.

Emily earned Bachelors of Laws and Arts (honors) from the University of Melbourne and an MBA from the University of Oxford. She is a member of the CFA’s Technical Working Group to develop a new global ESG disclosure standard for investment funds, and formerly served as rotating chair of the Steering Committee of the Climate Action 100+ investor engagement initiative and chair of the Asian Investor Group on Climate Change.

Jade Huang is a vice president and director of applied responsible investment solutions for Calvert Research and Management, which specializes in responsible and sustainable investing across global capital markets. She is responsible for managing the suite of Calvert Responsible Indices, including the index construction processes, as well as developing new investment products at Calvert. She joined Calvert Research and Management in 2016.

Jade began her career in the investment management industry in 2005. Before joining Calvert Research and Management, she was a portfolio manager with Calvert Investments. Previously, she was an investment analyst at Microvest, an asset management firm specializing in impact investing, and led the certification department at Fair Trade USA.

Jade earned a B.A. from the University of California, Berkeley and an M.A. in international finance and economics from Johns Hopkins University, School of Advanced International Studies (SAIS).

The newest SEC staff interpretation relating to shareholder proposals is poised to make it easier for ESG issues to get onto the ballot at company annual meetings. Investors should take steps to put issues of gender and diversity front and center. While terms like “diversity,” “inclusion,” and “gender lens investing” are becoming part of corporate and investing vocabulary, implementation of the values for which those concepts stand is far from complete.

When I left the staff of the SEC over three decades ago and began working in the field of responsible investing and shareholder advocacy, board diversity was one of the positive screens being applied to potential investments. Yet 30+ years hence, notwithstanding progress, there is still much to be done. In those early days, the SEC viewed ESG-related shareholder proposals as having broad social significance meriting inclusion in a company’s proxy statement. The courts, however, construed the issue more narrowly, stating that the timing for implementing policy decisions was an internal management issue not meriting shareholder attention.

The SEC division staff’s recent announcement heralded a return to a practice that will help keep companies from excluding ESG shareholder proposals. This is a positive development in the quest to move companies towards elevating a diverse group of women to senior positions. Imposing reasonable deadlines for implementation should be part of those proposals.

My first shareholder rights case after leaving the SEC staff was a 1991 appeal from Du Pont’s intent to exclude from its proxy statement a proposal to advance the date by which the company proposed to phase out production of chlorofluorocarbons (“CFCs”) and halons. The proponent was Amelia Roosevelt, and Friends of the Earth submitted the proposal to Du Pont on her behalf. The company had committed to phasing out production, but Ms. Roosevelt asked that Du Pont do so several years sooner because those chemicals were “destroying the Earth’s protective ozone layer at an alarming rate.”

I represented Calvert Social Investment Fund, the Comptroller of the City of New York, and the New York City Pension Funds in the court of appeals as amici curiae — “friends of the court.” The SEC joined the case as amicus, also in support of timing being a critical issue not subject to exclusion from the proxy statement. But climate change was not yet viewed with the urgency it has now been proven to be, and the court disagreed that timing merited shareholder consideration. Nevertheless, prior to the ruling Du Pont agreed to advance the date for phasing out production. Ms. Roosevelt’s case had forced the issue, and the mission was accomplished, but the larger issue of whether shareholders should be able to weigh in on timing on implementing ESG issues still loomed.

As we now know, climate change is indeed a critical issue not simply within the realm of “ordinary business operations,” and it is possible that a court today would reach a different conclusion on the timing issue. Likewise, given the failure of companies to diversify with any sense of urgency, timing should also be considered outside the realm of the day-to-day decision-making of management. Future shareholder requests for corporate action on diversity should make clear that adopting policies without specific timelines for action will not suffice.

In taking up the mantle, we can be inspired by the fact that women like Amelia Roosevelt were among the earliest individual investors at the forefront of shareholder advocacy, long before it became the norm for institutional shareholders to mobilize their assets for good. Gender lens investors should strive to continue the legacy of those women.

In 1947, Wilma Soss, a public relations specialist, proposed to U.S. Steel that the company appoint a woman to the board. She garnered some 10,000 votes in support of her resolution, but her efforts were rebuffed by U.S. Steel and by other companies that she subsequently approached with her “radical” idea. In 1950 she submitted a resolution to American Radiator and Standard Sanitary proposing that installing a woman on the board with industry expertise would both represent women’s interests and improve R&D. Her efforts, along with those of several contemporaries, have been credited with providing a framework for later advocacy efforts, including those of the Interfaith Council for Corporate Responsibility (ICCR) and the Council of Institutional Investors (CII).¹

Shortly thereafter came Evelyn Davis, the self-monikered “Queen of the Corporate Jungle” — a phrase she inscribed on her tombstone long before she passed away — who owned stock in some 86 companies and who raised important issues at shareholder meetings for more than 50 years starting in 1959.² She reportedly showed up to 30-40 shareholder meetings a year in order to state her case for corporate accountability.³ While some have criticized her approach as unnecessarily abrasive, her impact is undeniable.

In the continuing annals of shareholder advocacy, the bulletin recently issued by the SEC’s Division of Corporation Finance⁴ is significant because it announced the staff’s intent to return to the longstanding official SEC policy relating to the “ordinary business” exclusion. Specifically, if a shareholder’s proposal raises an issue of broad social significance, it will not be deemed “ordinary business,” and the company will be compelled to include the proposal in its proxy statement.

The new guidance reverses positions announced in recent years⁵ that tended to focus the staff’s analysis on individual company operations rather than on the broader social significance of the concerns being raised by shareholders in their proposals. The prior bulletins imposed burdensome requirements, such as requiring the board to provide an analysis, which often skewed the staff’s conclusion. The prior guidance also led to proposals being improperly excluded as having been “substantially implemented” under the guise of “micromanagement.”

The impact of the recently-announced change cannot be overstated. While the change might be viewed as part of an ongoing swing of the pendulum regarding staff review of shareholder proposals, we are at a point where issues such as diversity are ripe to pursue. Women have been at the forefront of shareholder advocacy, and should continue to take the lead to ensure that future generations of women are always at the table.

Article by Beth-ann Roth, a Certified Corporate Governance Professional^® and shareholder of R|K Invest Law, PBC, a Public Benefit Corporation law firm. She counsels on SEC defense, ESG compliance and shareholder advocacy, and on the regulation and business of importing organic, biodynamic, vegan and fair trade wine, beer and spirits. She recently contributed four chapters to the American Bar Association’s 2021 volume entitled “ESG: A Guidebook for Directors.” She serves on the US|SIF Policy Council, and on the Organic Trade Association’s Climate Change Task Force. 

Ms. Roth is also President of ESG Legal Services, a 501(c)(3) public interest law firm that protects unaccompanied minor children from deportation and provides nonprofit and shareholder advocacy services. ESG recently launched the Corporate-Shareholder Communications Initiative to establish a legal framework for non-adversarial dialogue outside the shareholder proposal process. She serves as pro bono general counsel to Die Jim Crow, a non-profit record label giving voice to fighting racial injustice in the US prison system, and to PalTechUS, an organization mobilizing the Palestinian diaspora to create professional opportunities for young STEM professionals.

Ms. Roth was previously an appellate litigator in the Office of the General Counsel at the SEC, and then joined the rulemaking section of the Division of Corporation Finance. After serving as a lobbyist, she joined the Calvert family of responsible mutual funds, and was concurrently the first lawyer for Calvert Impact Capital, helping to launch the organization that has since mobilized $2.5 billion of investor capital. She was with the law firms of Katten Muchin Rosenman and Dechert, served as counsel to IFESH and Rev. Leon H. Sullivan (author of The Sullivan Principles) on impact investing initiatives both domestically and in Africa, and later served as Deputy General Counsel for FINCA International, providing microfinance services and overseeing legal operations in 21 countries.

For women-led and impact leading Domini Impact Investments, sustainable investing isn’t a trend; it’s a tradition. CEO Carole Laible explains what’s ahead for sustainable investing in 2022—and why women are the ones that will continue to power its momentum.

Impact investing is everywhere these days. It’s in the news. It’s a part of an increasing number of investment portfolios. And with the urgent call from the 2021 Report of the Intergovernmental Panel on Climate Change,¹ I expect all eyes will continue focusing on sustainability throughout 2022. This growth is a greatly appreciated phenomenon to watch unfold.

Interest in sustainable investing, also known as socially responsible, ESG (environmental, social, and governance), ethical, or impact, investing has never been stronger. Recent statistics and the results of Domini’s survey conducted in partnership with Kiplinger, support this statement. We’re seeing that more than ever, investors care—and they care a lot. They understand that if we are to live on a green planet and if we are going to allow every human to thrive, then they must play an active role.

Last year, 33 percent of $51.2 trillion in total U.S. assets under professional management were invested in sustainable, responsible, and impact investing strategies.² As more asset managers enter the impact investing space, I smile; their entry is competition, yes—but more importantly, it’s the fulfillment of Domini’s vision. Since our inception, we have worked to make “investing for good,” the way all investing is done. Real progress is being made toward this goal.

It’s also incredibly satisfying to see the leadership of women in this transformation. I say this not only because it was our founder, Amy Domini, who helped launch the sustainable investing movement, or because we are a women-led organization, but also because on a daily basis, I witness the power of women investors, big and small, coming together to harness the power of finance to build a better future. A recent RBC Wealth Management study of their U.S.-based clients found that “female clients are almost twice as likely as their male counterparts to say it is important that the companies they invest in integrate ESG factors into their policies and decisions….[and are] more likely to prioritize ESG impact when considering what companies or funds to invest in, while male clients are much more likely to prioritize financial performance.” Women in particular, and a great many men too, look to sustainable investing to help express their care for the climate, for low-income communities, and for global health, knowing that all of these things are interconnected. They understand — often from personal experience — that gender diversity starts at the top. As companies hire more women and include more diversity in their upper management and on their boards, the organizations realize both better balance and better financial results. MarketWatch reported that companies with diverse teams attain 19 percent higher revenue than those that lack diversity.³ As part of our investing criteria, we consider diversity as a universal key performance indicator. But despite these statistics, the U.S. financial world is still struggling to realize the benefits diversity brings—at least if the largest public financial institution statistics are representative. According to a Deloitte study, only six of the 107 largest public financial institutions in the U.S. had female CEOs in 2019.

As investors, let us remember that what gets measured gets managed. When ethical investors decide not to invest in a company because it has no women on its leadership team or board, other companies start to consider the diversity of theirs. When we invest in low carbon footprint companies, other companies start paying attention to their own carbon footprint. When we boycott companies aiding warlords, companies reconsider aiding warlords for profit.

We can also use our voice as investors to create change when needed. Last year our firm communicated with companies on topics related to gender diversity, climate policy, executive compensation, and drug pricing. We were successful in reaching agreements with several companies. For example, we recommended that an automobile manufacturer publish a Diversity, Equity, and Inclusion report—and they did.

What gives me great hope is that while more than 70 percent of the respondents of our survey said a company’s environmental practices, social issue management, and governance policies are very or somewhat important to them when choosing investments, impact investing proves to be even more popular with younger investors.  Ninety-one percent of Millennial respondents to our survey say they are likely to add these types of investments to their portfolios soon. Baby boomers helped build the industry, and the younger generations will help propel it forward. Our future holds hope to be greater and greener as investors come together with mutual care for people, planet, and profit. That’s good news for 2022—and well beyond.

Article by Carole M. Laible, who is on a mission: to harness the power of finance to build a better world.

Since joining Domini Impact Investments in 1997, she has contributed to making that ideal a reality. Under her leadership as CEO, the impact-only investment adviser with $3 billion assets under management has empowered investors to grow communities, inspire companies, preserve the planet, and create a world of shared prosperity.

“Impact is when care reaches,” says Ms. Laible. But for Ms. Laible, this statement isn’t just a talking point; it’s a way of life. Besides being responsible for the overall research (the firm conducts proprietary in-house research) and mutual fund operations of Domini, she has been active in the fossil fuel divestment movement, supporting its efforts through public outreach and advocacy, including commenting on the issue, publishing op-eds, and participating in a roundtable on divestment of the NYS Common Retirement Fund.

With over 20 years of impact investing experience, Ms. Laible played a key role in the launch of a new strategy for the Domini Impact Equity Fund, for which she is also the Co-Portfolio Manager. It’s a role she also holds for the recently launched Domini Sustainable Solutions Fund and the Domini International Opportunities Fund. She also oversees the current investment strategy and sub-manager selection for the Domini Impact Bond Fund and the Domini Impact Equity Fund.

Instrumental in helping to make ‘investing for good’ the way all investing is done, Ms. Laible ensures Domini continuously shares information, works with peers, listens to stakeholders, and welcomes others to the industry. “We want our firm to demonstrate how today’s connections fuel tomorrow’s prosperity,” says Ms. Laible.

The rising momentum of the impact investment movement doesn’t surprise Ms. Laible, who has understood for decades that positive social, environmental, and financial returns aren’t mutually exclusive. “What’s good for people and the planet, is typically good for business” she says.

Nothing defines that legacy more than Domini’s Impact Investment Standards. “They’re a key differentiator for the firm,” says Ms. Laible, who serves on the Domini Standards Committee to define, clarify, and implement them. She also maintains a voting seat on Domini’s Impact Review Committee, which is responsible for the oversight of all companies’ consistency with Domini’s social and environmental standards and determination of investment eligibility.

In addition to her work at Domini, Ms. Laible is also a founding member of the Sustainability Accounting Standards Board™ (SASB)™ Investor Advisory Group. She works to support diversity in the field of finance, including as a Global Angel member of 100 Women in Finance.

Methodology

The Kiplinger-Domini national public opinion poll on ESG Investing was conducted August 4 to August 10, 2021, with 1,029 respondents. The survey has a margin of error of +/- 3.52%. Respondents were screened for age (25 and older), annual income (at least $75,000), and non-retirement investments (minimum of $10,000). A survey quota was implemented around familiarity with the term “ESG investing” to ensure that about half of the respondents were familiar with the term prior to taking the survey. Responses for some questions may not add up to 100 due to rounding or may exceed 100 if respondents could select more than one response.

Before investing, consider the Domini Funds’ investment objectives, risks, charges and expenses. Contact us for a prospectus containing this and other information. Read it carefully.

The Domini Funds are not bank deposits, are not insured and are subject to certain risks. You may lose money. The Domini Impact Equity Fund is subject to impact investing, portfolio management, information, market and recent events risks. The Domini International Opportunities Fund is subject to foreign investing, geographic focus, country, currency, and impact investing risks. The Domini Sustainable Solutions Fund is subject to sustainable investing, portfolio management, information, market and recent events risks. The Domini Impact International Equity Fund is subject to foreign investing and emerging markets, geographic focus, country, currency, and impact investing risks. Investing internationally involves special risks, such as currency fluctuations, social and economic instability, differing security regulations and accounting standards limited public information, possible changes in taxation, and periods of illiquidity. The Domini Impact Bond Fund is subject to impact investing, portfolio management, style, information, and market risks.

The Adviser’s evaluation of environmental and social factors in its investment selections and the timing of the Subadviser’s implementation of the Adviser’s investment selections will affect the Fund’s exposure to certain issuers, industries, sectors, regions, and countries and may impact the relative financial performance of the Fund — positively or negatively — depending on whether such investments are in or out of favor. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. Shares of the Domini funds are offered for sale only in the United States. DSIL Investment Services LLC (DSILD) distributor, Member FINRA.  11/21