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February 08, 2006
Calvert Rates Environmental, Social and Governance Practices of 100 Largest US Companies
    by Bill Baue

The move increases transparency of socially responsible investing research while maintaining the proprietary nature of the Calvert investment process.


Investors looking for insight on evaluating the environmental, social, and governance (ESG) performance of large U.S. companies just received some help from the Calvert Group . Calvert, a socially responsible investing (SRI) firm based in Bethesda, Maryland, recently released ratings evaluating the ESG performance of the 100 largest US companies by market capitalization. The Calvert Ratings disclose how the Calvert Social Research team ranks these companies on a scale from one (worst) to five (best) in five categories--environment, workplace, business practices, human rights, and community relations.

"This is all about good management and good governance," said Julie Fox Gorte, vice president and chief social investment strategist. "People don't tend to think of governance in these terms necessarily, but if you turn all this stuff on its head and ask, 'do well governed companies mess up the environment or treat their workers shoddily or trample on human rights'--Well no, of course they don't."

"This isn't about bunny hugging or being politically correct; this is flinty-eyed investing that is looking for good management," Dr. Gorte told SocialFunds.com. "It's also about making sure the world is the kind of place we all want to live in."

While the ratings do not rank the companies, Calvert does identify the seven top performers as the Calvert Leaders: Applied Materials (ticker: AMCC), Colgate-Palmolive (CL), Dell (DELL), Intel (INTC), Microsoft (MSFT), Procter & Gamble (PG), and Texas Instruments (TXN).

"We were thrilled to see the rating we got, but we beat ourselves up over the fact that it wasn't perfect in all areas," Dave Stangis, director of corporate responsibility at Intel, told Dr. Gorte. Intel scored "5" ratings in all categories save business practice. "You have no idea how valuable this is--it drives continuous improvement in our company in ways you cannot possibly imagine."

This feedback underscores one of the goals of the ratings--to drive better ESG or sustainability performance at companies.

"If we are successful in what we do, every company will be investable in a sustainability or a SRI fund," Dr. Gorte told SocialFunds.com. "I wish it would happen tomorrow, but I'm not planning on it--there are many companies with a long way to go."

Another goal is to drive investors to take deeper consideration of ESG performance by providing the information necessary to do so. While this degree of transparency on social research is unprecedented, Calvert is not worried about investors flocking from its mutual funds.

"This is information people can use to inform their investment decisions, but it's also not a complete investment universe--when people make investment decisions, they look at a much broader universe of stocks," said Dr. Gorte. "Any responsible broker, financial planner, or asset manager will tell you that."

"Furthermore, these are not investment recommendations--we're not saying buy or don't buy," she added.

The Ratings also respond to critiques of the SRI community for not being transparent enough about how it arrives at assessments of corporate ESG performance.

"We've been advocating for corporate transparency forever," said Dr. Gorte. "We've always been after companies to report on their environmental, social, and governance performance because we believe these are material to their financial performance--so these ratings turn the lens backwards, really."

That said, she admits the impossibility of full transparency.

"At some level, the nuts and bolts of any methodology for actually making an investment decision will always be a black box because that's how investment managers make money," Dr. Gorte said.

 

 
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