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Morningstar

Boston Trust Walden Small Cap BOSOX Sustainability

Morningstar Medalist Rating
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Sustainability Analysis

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Sustainability Summary

 | Published as of .  Based on data as of

Boston Trust Walden Small Cap Fund has several promising attributes that may appeal to sustainability-focused investors.

This strategy holds securities with low exposure to ESG risk relative to those of its peers in the Morningstar US Equity Small Cap 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.

Boston Trust Walden Small Cap 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. Boston Trust Walden Small Cap Fund has an asset-weighted Carbon Risk Score of 9.9, 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. No companies held by Boston Trust Walden Small Cap Fund are recognized as being involved in controversies at a high or severe level. 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.

By prospectus, the fund aims to avoid, or limit its exposure to, companies associated with controversial weapons, tobacco, thermal coal, and and small arms. Yet this goal is far from achieved, as the fund exhibits 1.18% exposure to thermal coal. This compares with 1.06% for its average peer in the US Equity Small Cap category.

Currently, the fund has 6.6% involvement in fossil fuels, which is roughly in line with 7.7% for its average category peer. Companies are considered involved in fossil fuels if they derive some revenue from thermal coal, oil, and gas. The fund's 7.4% involvement in carbon solutions is roughly in line with the 5.8% average involvement of its peers in the Small Blend category. Carbon solutions include products and services related to renewable energy, energy efficiency, green buildings, green transportation, and so on.

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ESG Commitment Level Asset Manager

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The firm walks the talk when it comes to sustainable investing.

Robert Zevin founded the firm in 1974 to provide socially responsible investment services. In 1982, Boston Trust Walden began subadvising Calvert Social Investment, one of the first U.S. mutual funds with socially responsible criteria, such as avoiding exposure to apartheid South Africa. What’s more, the group filed the first socially focused shareholder resolution for a mutual fund in 1986, prompting a company to negotiate with its union. Today, Boston Trust Walden manages 100% of its assets under management with ESG considerations in mind, although only half—including strategies branded with the Walden name—employ formal exclusionary screens.

Where Boston Trust Walden really stands out is active ownership. The firm’s proxy-voting policy clearly outlines guidelines for a wide variety of environmental and social issues, and it publishes proxy-voting decisions in a timely manner. Voting support for ESG-related shareholder proposals is extremely high, with 100% support for key ESG resolutions over the past three years. The firm has a clear policy for engagement, primarily focusing on climate risk, equality, and governance. When engagement efforts fail, the firm has regularly proved willing to file shareholder resolutions, while also participating in public policy initiatives.

Despite being a leader, Boston Trust Walden still has space for improvement. Transparency into the details of specific stewardship activities is lacking. The firm does not publish voting rationales for individual votes, nor does it provide enough case studies with set objectives, which are useful resources for investors and the broader industry. In addition, the firm should modernize the process for monitoring and tracking engagements with a more robust data management system.

Recent retirements leave the firm’s ESG expertise in relatively new hands. Longtime senior members Heidi Soumerai and Tim Smith, who oversaw engagement and thought leadership for Boston Trust Walden, retired in 2021 and 2022, respectively. Amy Augustine, who hails from sustainability advocate Ceres and Calvert Investments before that, joined in early 2019 as Boston Trust Walden’s director of ESG. She oversees a squad of eight ESG professionals, none of whom has more than five years’ experience with the firm, but several have ESG experience. This team supports the firm’s fundamental analysts with ESG integration and engagement. While the team’s size is adequate for its mandate, a longer track record of the team working together along with an investment in technology would evoke confidence.