Three years ago, this April, we launched the firm’s first actively managed sustainable “value” product—Calvert Focused Value. One question that frequently arises is how we can create a value-styled sustainability portfolio, given that traditionally resource-heavy industries—such as utilities, energy, industrials and materials—tend to dominate the value universe.

We seek to achieve this by pairing the team’s proven Opportunistic Value approach with Calvert’s sustainability expertise to identify fundamentally strong, responsible companies undervalued by the market.

Combining Opportunistic Value with financial materiality
Our team believes that companies with financial discipline—demonstrated by strong balance sheets—are well-positioned to withstand market downturns and help safeguard equity holders. Identifying such companies that are priced below their intrinsic value is integral to our Opportunistic Value philosophy. We find that Opportunistic Value blends particularly well with the Calvert approach given well-managed companies from an operational and financial standpoint also tend to manage sustainability risks and opportunities effectively.

We believe the combination of our proven Opportunistic Value philosophy with Calvert’s time-tested, financially material approach to sustainability makes for a unique, active sustainable value offering.

We achieve this balance in part by taking a holistic, nuanced approach rather than an exclusionary one. We do not categorically exclude any industries from our investment universe; instead, we focus on identifying financially disciplined corporate leaders that are successfully managing their financially material risks and opportunities.

Lessons from the utilities sector
Take, for example, the utilities sector. Foundational to global decarbonization efforts, utilities account for nearly 32% of Scope 1 and 2 emissions in the Russell 1000 Value Index—yet they make up only 4.8% of its market capitalization, as of March 31, 2025. This illustrates the double-edged nature of investing in the energy transition. We believe combining Opportunistic Value criteria with Calvert sustainability assessments can help identify utility leaders poised to thrive as the sector evolves.

We believe the sector is now at an inflection point. Global emissions are poised to turn lower for the first time in history, driven by electric grid modernization and renewable energy growth. This will likely occur despite rising electricity demand due to fleet electrification and data center development, positioning utilities for decades of growth.

Digging deeper into the sector, both vertically integrated utilities (which own all levels of the supply chain) and restructured ones (focused solely on electricity delivery) essentially perform the same business: delivering power to consumers. Material differences in their emissions profiles may be due more to carbon accounting practices than actual differences in emissions intensity. Moreover, many restructured utilities fail to report Scope 3 emissions, obscuring their true emissions footprint. We view these discrepancies as off-balance-sheet climate liabilities that must be accounted for to develop accurate comparisons.

In evaluating utilities, Calvert’s research process factors in discrepancies in reported emissions—this plays a central role in identifying the true emission profile and climate impact of these securities.

Recalibrating for Scope 3 emissions

After adjusting for Scope 3, the emissions gap between vertically integrated and restructured utilities all but vanishes. This is a far different picture than is often presented and underscores that true emissions reductions are not easy. They carry significant risks to asset owners, and we think the market needs to recalibrate the relative riskiness of published emissions profiles. In this vein, both the European Union and the state of California have established disclosure requirements for Scope 3 emissions that take effect in 2025 and 2027, respectively.

This phenomenon could materially alter investor-reported portfolio emissions—most acutely for sustainable investors that disproportionally own restructured utilities that report low financed emissions. These nuances underscore why a portfolio simply using an exclusionary policy does not understand the full picture.

The partnership that an experienced fundamental team and sustainability experts working together provides to fully vet companies and study how sectors will transition into the future (and thus what investment opportunities may present themselves), is essential to delivering a sustainable client solution.

Bottom line: At a time when we see a growing need for portfolio diversification, Calvert Focused Value serves as a true value alternative in the sustainable U.S. fund marketplace.