This strategy holds securities with low exposure to ESG risk relative to those of its peers in the Morningstar US Fixed Income category, earning it the highest Morningstar Sustainability Rating of 5 globes. ESG risk provides investors with a signal that reflects to what degree their investments are exposed to risks related to material ESG issues, including climate change, biodiversity, product safety, community relations, data privacy and security, bribery and corruption, and corporate governance, that are not sufficiently managed. ESG risk differs from impact, which is about seeking positive environmental and social outcomes.
Calvert Green Bond Fund holds itself out to be a sustainable or ESG-focused investment. In other words, ESG concerns are central to the investment process of this strategy. A fund with an ESG-focused mandate would have a higher probability to drive positive ESG outcomes. Calvert Green Bond Fund has an asset-weighted Carbon Risk Score of 9.4, indicating that its companies have low exposure to carbon-related risks. These are risks associated with the transition to a low-carbon economy such as increased regulation, changing consumer preferences, technological advancements, and stranded assets. The fund's 25.1% involvement in carbon solutions is not only high in absolute terms, but also surpasses the 3.6% average involvement of its peers in the Intermediate Core Bond category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on. By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons, tobacco, and and small arms. The fund fulfills this goal as its investment exposure to each of these activities is negligible.
The fund aims to avoid or minimize holdings in companies breaching international norms, including the UN Global Compact or the Universal Declaration of Human Rights. The fund has little exposure (1.62%) to companies with high or severe controversies. From bribery and corruption to workplace discrimination and environmental incidents, controversies are incidents that have a negative impact on stakeholders or the environment, which create some degree of financial risk for the company. Severe and high controversies can have significant financial repercussions, ranging from legal penalties to consumer boycotts. In addition, they can damage the reputation of both companies themselves and their shareholders.
Currently, the fund has 9.4% involvement in fossil fuels, surpassing 6.6% for the average peer in its category. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas.