Calvert Group to offer SAGE mutual funds

The Calvert Group Ltd. is looking to broaden its market and expand socially conscious investment policies with a new series of funds.

The series, called Calvert SAGE (Sustainability Achieved through Greater Engagement), will allow the firm to invest in companies that may not satisfy each of the firm’s established seven socially conscious investing screens. But the strategy provides for enhanced engagement with those companies, including proxy voting, shareholder resolutions and meeting with senior management to influence the company to improve its performance on environmental, social or governance issues.

While the method will expand the stocks the firm can buy, certain companies will remain excluded from all portfolios, including tobacco producers, manufacturers of “illegal weapons as defined by international humanitarian law as well as weapons that are used to lead an invasion” and companies that contribute directly to governments that are under U.S. or international sanction for human-rights abuses such as genocide and forced labor.

Because the first of the funds is in the registration phase, representatives from Bethesda, Md.-based Calvert declined to comment on the proposal.

On its website, Calvert states that the market is demanding engagement from its socially conscious money managers and that more companies are focusing on corporate responsibility.

But some observers are skeptical about the effectiveness of engagement activities in changing company policies.

During the past two years, interest in engagement has become more prominent, particularly among institutional investors, said Michael Herbst, fund analyst at Chicago-based fund tracker Morningstar Inc.

“But the track record is mixed at best,” he said. “Even if a large-scale institutional investor registers their opposition to things being voted on at the board level, it works in some cases, and it doesn’t work in just as many cases.”

That will be a challenge for the Calvert funds, Mr. Herbst said.

“The challenge that they face is having enough heft or influence to really shape any conversation. I’m really skeptical about how much influence they’ll have in changing policies,” Mr. Herbst said.

“That said, Calvert is a highly respected [socially conscious investing] shop,” he said.

Others think that engagement is effective.

“Whatever issue we are working on, there won’t be a 100% batting average,” said Tim Smith, senior vice president at Boston-based Walden Asset Management, which has $1.8 billion in assets under management and is involved in socially conscious investing. “Engagement has a demonstrated, consistent track record that shareholder engagement has impacted company polices and practices.”

Corporations have recognized how environmental, social and governance issues affect their business, said Mr. Smith, who is also a former chairman of the Social Investment Forum, a Washington-based research group.

“A real success story is when you never have to file a resolution, and there are hundreds of those in behind-the-scenes engagement,” he said. “About one-third of shareholder resolutions filed are withdrawn be-cause of agreements made with the companies.”

More engagement can only be a good thing, said Eileen Burkhart, president of Eileen Burkhart & Co. LLC, a fee-based-planning firm in Cleveland that doesn’t benchmark assets. “I think that’s why investors hire socially responsible managers — so that they will do everything they can to engage with the companies about what the investors want and so companies will make changes faster and [enact] more changes based on investors’ demand,” she said.

More investors are focused on engagement since the Securities and Exchange Commission mandated three years ago that proxy votes be made public, said Steve Schueth, president of First Affirmative Financial Network LLC, an adviser network and research firm based in Colorado Springs, Colo., with $700 million in assets under management.

“Investors want the managers to manage not only the financial risk but now what was previously considered non-financial risk, like environmental factors, which are part of the risk profile of the company,” he said.

The SAGE funds will include new holdings.

“[Calvert] may invest in a company because they have done a lot of improvements and then they are able to do more engagement,” Mr. Schueth said. “That might appeal to some of our investors.”

Other socially conscious firms have a “best-in-breed” approach, Mr. Smith said. In these cases, the manager wouldn’t exclude the oil sector altogether but instead would choose the firm with the best environmental, social and governance practices.

“Then we would use the voice of the shareholder to get them to make further improvements,” Mr. Cronin said.

E-mail Sue Asci at [email protected].