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Eaton Vance Corp.

PRI reporting framework 2020

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You are in Direct - Listed Equity Incorporation » ESG incorporation in actively managed listed equities » Implementation processes

Implementation processes

LEI 01. Percentage of each incorporation strategy

01.1. Indicate which ESG incorporation strategy and/or combination of strategies you apply to your actively managed listed equities; and the breakdown of your actively managed listed equities by strategy or combination of strategies.

ESG incorporation strategy (select all that apply)

Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
95 %
Percentage of active listed equity to which the strategy is applied — you may estimate +/- 5%
5 %
Total actively managed listed equities 100%

01.2. Describe your organisation’s approach to ESG incorporation and the reasons for choosing the particular strategy/strategies.

Across the Eaton Vance affiliates, we include consideration of environmental, social and governance (ESG) factors in our evaluation of investment opportunities and in the construction of the investment portfolios we manage.

EVC affiliates offer mandated Responsible Investment products through Calvert, Parametric and Atlanta Capital. While many of our responses relate to Calvert, as a leader in responsible investment for many years, Parametric also allows for the incorporation ESG considerations (including Calvert indices) into any separately managed equity portfolio per client request. For purposes of this report, any documentation of actions by Calvert prior to December 31, 2016 are the actions of Calvert and its predecessor. Eaton Vance Management purchased the majority of the assets of Calvert Investments, Inc. on December 31, 2016 and merged those assets into Calvert Research and Management.

Please note the responses above reflect Calvert and Parametric

Calvert:

Responsible investing is a stewardship-based approach that includes analyzing companies based on non-financial information, including their ESG factors, as well as evaluating financial data and information. Calvert focuses on finding companies that demonstrate leadership and create positive impact in society through their business operations and overall activities, while producing competitive investment returns. Calvert's mission is to make the lives of their clients and society better. Calvert's bedrock belief is that investment performance is inextricably linked to responsible corporate behavior.

Calvert offers investors among the widest choice of responsible investment strategies of any investment management company in the United States. Calvert offers a broad array of responsible investment strategies, both active and index, designed to seek competitive performance through all market cycles. Calvert’s strategies integrate rigorous financial analysis with robust environmental, social, and governance research in seeking to manage risks and identify return opportunities other managers may overlook. Fund strategy and prospectus language are major determinants of ESG incorporation strategy.

Parmetric:

Parametric's approach to ESG incorporation is designed to allow each client to implement their own specific views on responsible investing in a very effective, customized manner - rather than accepting a uniform approach - within a separate account. In their conversations, Parametric has found considerable diversity both in terms of ESG priorities and equity exposure preferences. Rather than encourage clients to accept a uniform approach, Parametric has established a robust framework intended to facilitate any possible responsible investing mandate. This is accomplished by partnering with dedicated outside ESG research providers and allowing clients to stipulate their equity exposure independently. Parametric’s research providers supply them with a full range of responsible investing metrics: environmental, social or governance ratings; carbon data; and controversies, sanctions, and business involvement indictors. Equity exposure options range from a full slate of global indexes, as well as their own active strategies. Decades of portfolio construction experience and technology infrastructure investment allow us to seamlessly integrate these multiple components into a transparent, separately managed account that strives to deliver the desired equity exposure. This comprehensive, flexible tool kit enables us to be responsive to client needs while remaining on the forefront of environmental, social and governance issues.

Parametric takes a rules-based approach and can help clients incorporate their values via portfolio construction using two basic tools (screens or quantitative iteration):

  • A screen divides the eligible investment universe such that companies with acceptable business involvement or behaviors remain and those with objectionable characteristics are omitted. Clients can select as many screening areas as they desire and add or remove them at any time. The remaining securities that are still eligible for investment are weighted in the portfolio in a manner using an optimization process that attempts to minimize active biases relative to the benchmark.
  • A quantitative integration uses a single environmental, social and/or governance metric to actually select and weight the portfolio constituents. This process strives to overweight companies with better characteristics and underweight the worse ones but does not necessarily omit any securities outright. The quantitative integration process typically places constraints on active biases to limit expected performance deviations.

Atlanta Capital

The portfolio managers seek to invest in quality growth companies with a demonstrated history of consistent growth and stability in earnings the portfolio managers believe are trading below intrinsic value. Further, the portfolio managers seek to invest in companies that manage environmental, social and governance ("ESG") risk exposures adequately and that are not exposed to excessive ESG risk through their business activities. Companies are analyzed utilizing The Calvert Principles for Responsible Investment, a framework for considering ESG factors. Each company is evaluated relative to an appropriate peer group based on material ESG factors as determined by CRM. Financial quality is determined by analysis of a company's financial statements and is measured by a company's demonstrated ability to grow earnings consistently. Sustainable earnings growth potential is determined by fundamental analysis of a company's financial trends; products and services; industry conditions; and other factors. Combining the quality, earnings and ESG analysis, leads to a more robust analysis. Incorporating all factors helps to enable the portfolio managers to manage individual security risk through analysis of each security's risk/reward characteristics, financial and ESG, and to build a portfolio that may participate in rising markets while minimizing participation in declining markets.

01.3. If assets are managed using a combination of ESG incorporation strategies, briefly describe how these combinations are used. [Optional]

The Calvert Principles for Responsible Investment define Calvert's ESG approach. Calvert's responsible investment strategies leverage the Calvert Research System (CRS), a proprietary platform used to analyse companies across asset classes, which allows Calvert to integrate both financial and material sustainability insights while comparing companies across metrics in a given universe and across various peer sets.


LEI 02. Type of ESG information used in investment decision

02.1. Indicate what ESG information you use in your ESG incorporation strategies and who provides this information.

Type of ESG information

Indicate who provides this information  

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

Indicate who provides this information 

          Corporate valuation analysis and measures
        

Indicate who provides this information 

02.2. Indicate whether you incentivise brokers to provide ESG research.

02.4. Additional information. [Optional]

Across the Eaton Vance affiliates, we include consideration of environmental, social and governance (ESG) factors in our evaluation of investment opportunities and in the construction of the investment portfolios we manage.

While the answers above reflect Calvert's general investment philosophy of investing in companies that demonstrate positive ESG performance as they address corporate responsibility and sustainability challenges, this philosophy filters through the Eaton Vance affiliates. Through Calvert, Eaton Vance Management portfolio managers and fundamental analysts have access to leading proprietary ESG research conducted by Calvert's ESG analysts and collaborate with Calvert's ESG team regularly.

Parametric relies on dedicated ESG research providers to perform comprehensive, company-level research on a wide variety of issues. Parametric undertakes careful review of each provider's methodology and resources, as well as oversees and quality checks any incoming data.

Atlanta Capital's large cap growth team has been investing in ESG equities since 1998 alongside EVC's affiliate, Calvert. Utilizing Calvert's research and analysis Atlanta Capital strives to identify additional elements essential for a company to sustain its competitive advantages over the long term.


LEI 03. Information from engagement and/or voting used in investment decision-making

03.1. Indicate whether your organisation has a process through which information derived from ESG engagement and/or (proxy) voting activities is made available for use in investment decision-making.

03.2. Additional information. [Optional]

Calvert tracks all of their engagement efforts that apply to specific issuers in their research system. All proxy voting information, including their records, are available on the Calvert website.

EVM has also incorporated ESG issues in the voting guidelines of their Proxy Voting Policy. EVM's main basis of analysis when exercising their voting rights is the maximization of returns for their clients, and in so doing EVM requires that companies submit to the applicable regulations in the countries and jurisdictions where they do business, that their conduct be socially responsible, and that they submit to high standards of governance and ethics.

Parmetric's firmwide Proxy Voting Guidelines, which are applied to their commingled vehicles and are available to any separately managed client, do take into consideration a company's impact on the environment and are generally supportive of shareholder proposals calling for disclosure related to climate change as well as resolutions asking companies to commit to reducing their greenhouse gas emissions within reasonable timelines. Parametric may also support select sign-on letters or collaborative engagements.


(A) Implementation: Screening

LEI 04. Types of screening applied

04.1. Indicate and describe the type of screening you apply to your internally managed active listed equities.

Type of screening

Screened by

Description

Across the Eaton Vance affiliates, we include consideration of environmental, social and governance (ESG) factors in our evaluation of investment opportunities and in the construction of the investment portfolios we manage.

 Please see LEI 04.2 for a description of how screens are incorporated into both Calvert and Parametric investment processes.

Screened by

Description

Across the Eaton Vance affiliates, we include consideration of environmental, social and governance (ESG) factors in our evaluation of investment opportunities and in the construction of the investment portfolios we manage.

 Please see LEI 04.2 for a description of how screens are incorporated into both Calvert and Parametric investment process.

Screened by

          Treaty on Conventional Armed Forces in Europe and the UN Register on Conventional Arms
        

Description

Across the Eaton Vance affiliates, we include consideration of environmental, social and governance (ESG) factors in our evaluation of investment opportunities and in the construction of the investment portfolios we manage.

 Please see LEI 04.2 for a description of how screens are incorporated into both Calvert and Parametric investment process.

04.2. Describe how you notify clients and/or beneficiaries when changes are made to your screening criteria.

At Calvert, the Calvert Principles for Responsible Investment provide a framework for the research process and evaluation of issuers. As noted in that document, Calvert's commitment to these Principles signifies continuing focus on investing in issuers with demonstrated responsibility and sustainability characteristics. The application of the Calvert Principles generally precludes investments in issuers with particularly risky/detrimental operations/activities. The full list of such operations/activities can be found at https://www.calvert.com/media/34498.pdf.

As a responsible investor, Calvert clients invest in issuers that provide positive leadership in the areas of their operations and overall activities that are material to improving societal outcomes, including those that will affect future generations. Calvert seeks to invest in issuers that balance the needs of financial and nonfinancial stakeholders and demonstrate a commitment to the global commons, as well as to the rights of individuals and communities.

The Calvert Principles provide a framework for Calvert's evaluation of investments and guide Calvert's stewardship on behalf of clients through active engagement with issuers.The Calvert Principles seek to identify companies and other issuers that operate in a manner that is consistent with or promote: environmental sustainability and resource efficiency; equitable societies and respect for human rights; and accountable governance and transparency. The principles articulated in this document are based on the UN Global Compact and other global norms related to responsible corporate behavior. Calvert believes that most corporations and other issuers of securities deliver a net benefit to society, through their products and services, creation of jobs and the sum of their behaviors.

In the event that there are any changes to the Calvert Principles, they will need to be approved by the Board of Trustees for the Calvert Funds. Updated information would then be publicly shared on Calvert's website and with clients as appropriate.

For a separate account mandate, Parametric has the ability to incorporate ESG screens into the portfolio construction process. The firm currently utilizes ESG business involvement and scoring data from dedicated third-party providers, including MSCI, Sustainalytics, IWP Capital and JLens, which is incorporated into the rules-based implementation of a portfolio. Parametric offers over 40 standard screens including the following:

  • Faith-based (including Catholic Values, Baptist Values, Jewish Values, and Shariah Compliance)
  •  Environment (including Fossil Fuels, Carbon Intensity, and Factory Farming)
  •  ESG Controversies (including human rights and labor rights)
  •  Sanctions (including Iran, Sudan)
  •  Global Norms (including United Nations Global Compact)
  •  Governance - Gender Diversity
  •  Social (including Abortion, Animal Welfare, Firearms, Gambling, and Tobacco)
  •  Sectors and Industries (both US and Global)
  •  Countries

Parametric also works with clients to implement custom restriction lists from other data providers. The proprietary systems are designed to provide clients with a high degree of customization and allow account-specific restrictions to be enforced and monitored on an ongoing basis.


LEI 05. Processes to ensure screening is based on robust analysis

05.1. Indicate which processes your organisation uses to ensure ESG screening is based on robust analysis.

05.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your ESG screening strategy.

05.3. Indicate how frequently third party ESG ratings are updated for screening purposes.

05.4. Indicate how frequently you review internal research that builds your ESG screens.

05.5. Additional information. [Optional]

Calvert subscribes to third-party ESG research at an indicator level, and brings thousands of third-party indicators into the Calvert Research System. In the peer group models created by Calvert's ESG research analysts within the Calvert Research System, select third-party indicators, as well as proprietary indicators developed by Calvert, are used to calculate issuer scores. These third-party data points are loaded into the underlying database monthly.

Please note, through Calvert, EVM and Atlanta Capital portfolio managers and fundamental analysts have access to leading proprietary ESG research conducted by Calvert's ESG analysts and collaborate with Calvert's ESG team regularly.


LEI 06. Processes to ensure fund criteria are not breached

06.1. Indicate which processes your organisation uses to ensure fund criteria are not breached.

06.2. If breaches of fund screening criteria are identified, describe the process followed to correct those breaches.

At Calvert, The Calvert Principles for Responsible Investment provide a framework for Calvert’s research process and evaluation of issuers. As noted in that document, Calvert's commitment to these Principles signifies continuing focus on investing in issuers with demonstrated responsibility and sustainability characteristics. Certain issuers are deemed to be ineligible for investment. For Calvert Funds, if an ineligible security was purchased in error, the Fund must sell the security in the best interest of shareholders. If this results in a loss to the Fund, CRM typically makes the Fund whole.

Calvert periodically reviews its assessment of issuers, and may determine that an issuer is no longer eligible for investment, making its securities ineligible for their portfolios. When this occurs, if any such securities are held, CRM's disposition policy is followed. This policy specifies that if a security moves to ineligibility status, CRM will sell the security at a time and in a manner that is determined to be in the best interests of the client (a Calvert Fund and its shareholders, or a separate account following these criteria).

At Parametric, if breaches are found, all affected portfolios are analysed for potential impact and clients are notified if deemed necessary.

At Atlanta Capital, if breaches are found, all affected portfolios are analyzed for potential impact.The client is notified and made whole if necessary. Then processes and procedures are reviewed to insure it does not occur again.

06.3. Additional information. [Optional]


(B) Implementation: Thematic

LEI 07. Types of sustainability thematic funds/mandates

07.1. Indicate the type of sustainability thematic funds or mandates your organisation manages.

07.2. Describe your organisation’s processes relating to sustainability themed funds. [Optional]

Calvert as two environmental-themed indices in the Calvert Responsible Index Series, which offers the definitive investable universe of companies with strong sustainability profiles -- the Calvert Global Water Research Index and the Calvert Global Energy Research Index. The Calvert Global Water Fund and the Calvert Global Energy Fund track the performance of these indices respectively.

Our environmentally themed equity funds include the Calvert Global Energy Solutions Fund and the Calvert Global Water Fund. The Calvert Global Energy Solutions Fund concentrates in the sustainable energy solutions industry and normally invests at least 80% of its net assets, including borrowings for investment purposes, in equity securities of U.S. and non-U.S. companies whose main business is sustainable energy solutions or that are significantly involved in the sustainable energy solutions sector. The companies in which the Fund invests operate businesses, business units or business lines that (i) contribute to growth and innovation in renewable energy industries and the commercial adoption of renewable energy sources, including solar, wind, biomass, waste-to-energy, geothermal, biofuels, hydropower, and landfill gas recovery, (ii) manufacture technologies that minimize greenhouse gas emissions, (iii) provide energy storage solutions, (iv) distribute energy produced from renewable energy sources, (v) deliver products and services that improve energy efficiency and reduce greenhouse gas emissions across economic sectors, (vi) demonstrate leadership in the most energy-intensive industries through the minimization of their energy use and carbon footprint, (vii) are electric utility and independent power producers that are leading the transition from fossil fuels to renewable energy, and (viii) contribute to the electrification of the transportation system. The Fund does not invest in companies with significant fossil fuel reserves (including natural gas reserves) and seeks to minimize its exposure to fossil fuel extraction and nuclear energy production.

The Calvert Global Water Fund concentrates in the water-related resource sector and normally invests at least 80% of its net assets in equity securities of U.S. and non-U.S. companies whose main business is in the water sector or that are significantly involved in water-related services or technologies. The companies in which the Fund invests operate businesses, business units or business lines that (i) provide clean drinkable water or wastewater management, (ii) manufacture products, such as pumps, pipes and valves, and provide services that help to cultivate clean water infrastructure systems, (iii) manufacture products or provide services related to the construction, planning, design, or engineering of infrastructure that improves water efficiency and/or delivery, (iv) develop, manufacture, distribute and/or install equipment or technologies for the treatment, separation and purification of water, including membranes, ultra-violet, desalination, filtration, ion exchange, and biological treatment, (v) offer technologies that promote water conservation and the efficient use of water, such as metering or recycling, (vi) are leaders in water efficiency or water re-use in high-intensity water industries, or (vii) provide innovative solutions to global water challenges.

Calvert also has a combination themed fund that covers both environmental and social themes, the Calvert Emerging Markets Equity Fund that seeks to invest in emerging market companies whose products, services or industrial and/or business practices contribute towards addressing one or more global sustainability challenges in local or international markets, including (i) development, poverty and health, (ii) environment and climate change, or (iii) rights and governance. Investments are selected for financial soundness and evaluated according to these sustainability and corporate responsibility criteria, the application of which is considered to be in the economic interest of the Fund and its shareholders.

 


(C) Implementation: Integration of ESG factors

LEI 08. Review ESG issues while researching companies/sectors

08.1. Indicate the proportion of actively managed listed equity portfolios where E, S and G factors are systematically researched as part of your investment analysis.

ESG issues

Proportion impacted by analysis
Environmental

Environmental

Social

Social

Corporate Governance

Corporate Governance

08.2. Additional information. [Optional]

EVC's approach to responsible investing is both flexible and evolving. Our affiliates' portfolio managers and analysts seek to understand the potential impacts of how issuers manage ESG risks and opportunities using both proprietary and third-party research. Because these risks and opportunities vary across industries, geographies and business models, we believe that maintaining a focus on financial materiality is necessary to effective responsible investing. Across our investment affiliates, we include consideration of environmental, social and governance (ESG) insights in our evaluation of investment opportunities and/or in the construction of the investment portfolios we manage

At Calvert, every strategy that follows the Calvert Principles includes the analysis of E, S, and G factors. The most material E, S, and G factors for each issuer are determined at the subindustry level. Each peer group will have a different weighting for the E, S, and G pillars, based on what issues the analyst determines are financially materially to that peer group. The 'G' weighting will always equal at least 20%, while the E and S pillars do not have a minimum.


LEI 09. Processes to ensure integration is based on robust analysis

09.1. Indicate which processes your organisation uses to ensure ESG integration is based on robust analysis.

09.2. Indicate the proportion of your actively managed listed equity portfolio that is subject to comprehensive ESG research as part your integration strategy.

09.3. Indicate how frequently third party ESG ratings that inform your ESG integration strategy are updated.

09.4. Indicate how frequently you review internal research that builds your ESG integration strategy.

09.5. Describe how ESG information is held and used by your portfolio managers.

          Please see LEI 09.6 for the answer
        

09.6. Additional information. [Optional]

LEI 9.5 Other, specify:

At Calvert, during the reporting period, material ESG information and analysis were considered in investment decision-making by portfolio managers and analyst in their company evaluations. Analysts across fixed income teams, equity teams and sustainability research teams discuss companies and relevant issues on a regular basis. Furthermore, investment analysts will collaborate with the ESG research team ahead of meeting with management teams to discuss any material ESG issues. Calvert also consults with the investment teams in their engagement with companies on ESG topics.

Additional Information:

As noted in earlier answers, both the Calvert Principles for Responsible Investment and the Calvert Research System (CRS) are integral to how they assess and make investment decisions.


LEI 10. Aspects of analysis ESG information is integrated into

New selection options have been added to this indicator. Please review your prefilled responses carefully.

10.1. Indicate which aspects of investment analysis you integrate material ESG information into.

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

Proportion of actively managed listed equity exposed to investment analysis

10.6. Additional information. [OPTIONAL]

Across our investment affiliates, investment teams include consideration of environmental, social and governance (ESG) insights in our evaluation of investment opportunities and/or in the construction of the investment portfolios we manage.

Specifically, the Calvert Research System is a proprietary platform engineered to capture what Calvert believes to be the most material ESG criteria from multiple data sources to rate and rank companies across both equity and fixed-income portfolios. Calvert constructs and applys detailed scoring models that incorporate the best available information to review each potential investment, rating and ranking companies within their sub-industries, ultimately producing an assessment that reflects both peer-relative and absolute performance in a defined universe. ESG analysts conduct regular industry reviews to look at key industry issues and trends, ensure the scoring model remains reflective of material ESG risks and opportunities, and determine how certain companies compare to their peers with regard to emerging best practices.

Calvert's fundamental analysts and portfolio managers have access to Calvert Research System (CRS), and are able to collaborate with the ESG analysts when completing their fundamental analysis.


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