Bennett Freeman works with companies that traditional socially responsible investors never used to consider owning, like Exxon Mobile and Dow Chemical. He talked to writer Elizabeth Wine about advocating with those companies to adopt greener policies.
1. SRI investments have increased 13% to $3 trillion. How much of that is nervous money moving around versus performance?
The biggest driver of growth of assets is the growing concern of investors about certain environmental and social and governance (ESG) issues. Sustainability is not just about environmental protection, but about building strong economies and encouraging growth and investment in ways that can be maintained in the long term. Investors have also become more aware and sensitive to how non-financial factors like ESG can affect the financial performance of companies and ultimately the investment performance as well.
2. SRI had the reputation of attracting only idealist investors who "voted their conscience." Is that changing?
SRI used to attract people on the basis of aligning their investments with their values. That remains the basis of SRI, but we've seen a shift in recent years, whereby more and more investors are increasingly sensitive to ESG issues. It only takes so many BP tragedies to get the message to investors that safety factors matter to performance. There is now greater recognition that it matters the way companies handle social risks-labor and human rights-to their brands, or address environmental risks or opportunities to create new products and build new markets.
3. Critics point out that semiconductor makers pollute the water in developing countries, and some of the biggest cell phone makers have done business with China, which has a poor record on human rights. Where can an SRI investor turn?
There's a much greater awareness on corporate responsibility and sustainability issues faced by every sector. Now, just about every sector has come under much greater scrutiny. No sector is without social and environmental risks, and more investors are becoming aware of the importance of those risks that help drive some of their investment behavior.
4. SRIs now seem to be more active in buying shares in companies that were once considered taboo. Are you hoping to influence these companies?
We launched two new categories of funds to demonstrate our wider approach to investment. The Calvert Solution Funds are sustainability-themed, sector-specific funds. Under that heading we launched an alternative energy fund and a water fund. The Calvert SAGE (Sustainability Achieved through Greater Engagement) Funds can invest in companies that might not meet all our ESG criteria. Not only do we think they're a positive investment proposition, but we commit to doing major, intensive advocacy around these companies in the portfolio.
5. What about investors who still like the idea of "vice" stocks that SRI has traditionally shunned?
We've always held the position that tobacco is a socially irresponsible product. There are just three criteria that we subject the SAGE Funds to: tobacco, certain types of weapons, and a human rights criteria, that is, in effect a [ban on] Sudan and Burma. It says no to companies that directly support governments that are under U.S. or global sanction for grave human rights abuses. It's not a values choice, but an investment choice that has positive results associated with it.