Exit Interview: Bennett Freeman, Calvert Investments

Exit Interview

Exit Interview: Bennett Freeman, Calvert Investments

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Exit Interview is an occasional series profiling veteran sustainability professionals who recently have left their job.

On April 30, Bennett Freeman stepped down as senior vice president for sustainability research and policy at Calvert Investments, the culmination of three decades in the public and private sectors, working at the intersection of policy, finance and sustainability. At Calvert, one of the pioneering firms in socially responsible investing (the firm prefers the term "responsible investing"), Freeman has been at the forefront of a wide range of issues, from human rights to women's empowerment to conflict minerals.

I caught up with Freeman recently — he and I met at an SRI conference in 2005 — to hear his thoughts on the state of the art of investor activism and where it is headed. The conversation has been edited for clarity and length.

Joel Makower: Let’s start with a little background. How did you get into socially responsible investing in the first place?

Bennett Freeman: I'd been in the broader corporate social responsibility world for some years before that. Originally, back in the mid '80s, I was hired by Jack Welch at GE to work with him in the senior executive team on a whole range of corporate responsibility and public policy issues. I spent eight years at the state department as a Clinton presidential appointee, and I came back to the corporate responsibility field in my last job at state as Deputy Assistant Secretary for Democracy, Human Rights, and Labor.

In that job I led the development of what became the global human rights standard for oil and mining — the Voluntary Principles on Security and Human Rights. When I left state on the last day of the Clinton administration in 2001, I committed myself to staying in the world for corporate responsibility and human rights. I did that for five years, teaching writing, publishing, lecturing and consulting.

I came to Calvert in 2006 for two reasons. First, at that point, I had worked on these issues on behalf of corporations, on behalf of the U.S. government, and with NGOs at the time as a board member of Oxfam America. I saw the growing importance of responsible investors, and I hadn't worked that angle before. And it was appealing to me.

The other angle that appealed to me was my perception at the time that for all of the pioneering work done by SRIs in the U.S. that the model had become a little rigid and inflexible, if not stale, and needed a little shakeup and dynamism. And I felt that Calvert, despite its many years of leadership — two decades before I got there — itself needed to renovate and modernize its approach to SRI. So that's why I came to Calvert in '06 for those reasons.

Makower: So where do you think we are now? What you said about Calvert — the industry needing shaking up and being a little stale — I still hear that. How would you assess the state of socially responsible investing?

Freeman: I think SRI is in a healthier place, and it's partly because firms like Calvert have modernized their approaches. In Calvert's case, we focused less over the years on negative screening and more on analysis of companies that looking for ESG-related opportunities and risks, and continue to look at environmental, social and governance risks. But we became increasingly attracted to companies that we felt were affirmatively doing the right thing, and really tried to deemphasize the negative screening while still keeping faith with some of the issues that we and our shareholders care about.

For example, not investing in companies that produce weapons that violate international humanitarian law — land mines, cluster bombs and so forth — that are just immoral. Our proposition became more of a hard-headed investment proposition. Simply stated, that companies that address and deal intelligently with ESG-related risks and opportunities in their industries on top of their economic and business opportunities tend to be ones that are going to be better positioned to do well in the 21st century. We also, and Calvert was not alone in this regard, saw the opportunity to develop new investment strategies that embraced very specific sustainability themes.

We launched a global alternative energy fund in 2007, a global water sustainability fund in 2008, and an emerging markets sustainability fund in 2011. The common theme uniting those was linking global sustainability challenges with global investment opportunities. That's part of the journey that Calvert has traveled — to break out of the boutique, if you will, of a very focused view on what we wanted to avoid, and instead to break out with a broader arena of what we wanted to embrace.

Makower: Is “socially responsible investing” still a relevant term? I’ve heard lots of other terms used.

Freeman: I think that we need to get beyond the labels and some of the language. Calvert is not alone in embracing new terminology. Calvert calls itself now a responsible investor, and I think that's a proposition that's going to have more traction to mainstream investors that recognize that environmental, social and governance issues are salient, and in some cases material, but still want to have a wide range of investment options and choices.

Makower: So mainstream attraction is one thing. Mainstream impact is another. Are all of these trillions of dollars actually making a difference, and if so where?

Freeman: Absolutely. It’s making a difference both in terms of the companies to whom responsible investors are directing capital, but also the kinds of investment choices made by asset managers, whether they've been SRI-oriented or not, that are now seeing opportunities with particular kinds of companies.

One company, Joel, that you wrote about a few weeks ago that is part of my own career experience is GE. That's a company that has provided a model to show that a big iconic company can build its future in part around innovation and environmental technology, and marketing that very aggressively in countries like China and India. So that's appealing.

A huge part of responsible investment is shareholder advocacy and public policy. There's a substantial record that we can point to on behalf of individual responsible investment firms like Calvert, but more importantly, to the SRI and responsible investment community cumulatively of impact on climate and environmental sustainability, impact on labor and human rights, impact on corporate governance, diversity, gender equity.

I'm thinking of platforms that we've been a part of, whether it's Ceres and its Investor Network for Climate Risk or the Interfaith Center for Corporate Responsibility, particularly in their case on labor and human rights. The work that has been done by responsible investors in the U.S. not only has changed behavior of individual companies but also set standards across entire industries, whether it's carbon disclosure or measures such as Dodd-Frank Section 1502, compelling disclosure of efforts to curtail use of conflict minerals. There are dozens of examples of impact by responsible investors working through the public equities markets as active owners.

Makower: The fossil fuel divestment trend has grown faster than I think a lot of people expected. How do you think that story ends?

Freeman: I think that story ends with some great growing pressure on the big oil companies in particular to be more thoughtful and candid in their analysis of the stranded assets thesis than they've been thus far. I think it also is going to bring some pressure to bear on public policy on the legislative arena, not in this Congress, but hopefully with the next one. I’m a big fan of the divestment movement insofar as it is putting a spotlight on the problem of climate change. It's urging faster, more focused and concerted action at all levels.

That said, I don't think that divestment itself is the answer, even a significant part of the answer. I think that it makes a political statement, but not much of an economic difference. I don't think divestment is a very viable investment proposition unless it's coupled with reinvestment in clean tech. And even then, there are problems with simply selling one's shares when others will buy them.

What I think is critical is for individual and institutional investors to take a more comprehensive approach, looking at their portfolios, doing some rigorous carbon accounting and reducing the overall carbon content of those portfolios, and maybe doing some selective divestment, say of coal companies in particular.

But also continuing to hold some of the integrated oil companies and use those holdings as platforms for active ownership and engagement. We can make a difference as responsible investors, particularly if we coordinate and work together in challenging and even confronting companies to reduce carbon emissions, diversify fuel sources toward renewables and be more honest about the stranded assets threat. I would like to see less fighting between the proponents of divestment versus active ownership and engagement. I see the strategies as being complementary and two sides of the same coin.

Makower: What about human rights — it seems to be on the rise in the responsible investing world. What's the main focus of that?

Freeman: The main focus has been framing human rights challenges, not just one about moral values, which it certainly is and must remain first and foremost. But also understanding human rights issues as presenting investment risks to particular companies in certain industries. And the SRIs really have taken a lead in making that argument, and it's particularly true in extractives — oil, gas, and mining; in retail, apparel and footwear; in agriculture, food, and beverages; as well as across ICT, whether it's Internet, mobile communications or telcos, whether on the supply-chain labor side or on the Internet surveillance and censorship side.

I've seen over the last decade a huge upsurge in the understanding of human rights-related risk in an investment context, and mainstream institutional asset owners and managers are now beginning to focus on this proposition. So I'm pretty optimistic that we're moving towards a much greater awareness of human rights as an investment risk factor, but also as an opportunity to improve the commitment and performance of companies.

Makower: What about social and economic equity? Is that going to start to become a shareholder issue?

Freeman: It already is. One of the newer areas of shareholder advocacy engagement in the last year has been the minimum wage. The recent commitments by Walmart and McDonald's reflect the pressure brought to some extent by shareholders, that we've got a problem in this country, and indeed globally, and that we've got to pay people a fair living wage.

So I'm hopeful that we'll make progress on diminishing some of these gross disparities in compensation, and that we can find other ways, particularly through pay equity for women and women's empowerment, to address some of these divides that have sadly become sharper than ever in the United States.

Makower: So, what's next for you?

Freeman: I'm going to remain in the world of corporate responsibility, responsible investment, business and human rights, working as a consultant with companies and investors, but also continue in some of my board roles with major NGOs, such as Global Witness, whose advisory board I chair. I'm also looking to teach and speak and write more, and particularly in conjunction with think tanks and universities.

But I'm staying in the game for the long-term. I'm very optimistic about the opportunities I'll have working with lots of friends and colleagues over the years to strengthen corporate accountability and sustainability.

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