On Wall Street, the word “conviction” refers to one’s confidence that a given investment will be profitable. For example, a “high conviction” investment is one that an investor believes will ultimately be highly profitable and is worth holding—even at the cost of enduring losses along the way. Likewise, an investor could easily get shaken out of a low-conviction investment since they don’t have the long-term vision and belief that conviction can bring. It goes without saying that the real-world impact of an investment, whether positive or negative, rarely factors into Wall Street’s focus on profitable trades.
As investors we are doing our best to be conscious of the social and by considering environmental impact of our money, we could adapt the Wall Street concept of conviction to our own approach. Instead of looking at it through the lens of profitability, let’s think of conviction as a deeply rooted, sincere belief in the goodness, value, and importance of an investment. When we have conviction in an investment, we believe that it matters to the world—to communities, to the environment. We have plenty of data and stories from people that show the real-world positive results from this approach.
For example, most of our clients have invested in Calvert Impact Capital’s Community Investment Note. For the last 30 years, Calvert has offered this fixed-income product that’s invested over $3 billion in more than 550 mission-driven organizations in 100-plus countries. This capital has supported affordable housing, small business, renewable energy, sustainable agriculture, and other initiatives that strengthen communities and advance sustainability worldwide. Calvert has long been a leader in documenting the real-world impact of their investees through their annual impact reports. In 2023, Calvert’s investees financed almost 250,000 businesses owned by women and people of color. Over 19,000 affordable housing units were created or preserved. And 6.4 million metric tons of CO2 were reduced, with the equivalent effect of taking almost 1.5 million gas-powered cars off the road for the year. This performance underscores a powerful truth: guided by their conviction, investors in the Community Investment Note are directly contributing to the creation of remarkably positive societal and environmental outcomes.
Clearly, our conviction is not blind belief. Yet, like any deeply held value, our conviction can be, and often is, tested. In these times, we are seeing and experiencing backlash against clean energy, diversity, equity, and inclusion (DEI), and in general, any consideration of environmental, social, and governance (ESG) factors within the corporate and investing worlds.
The current administration is actively attacking these areas through legal and financial means in an attempt to dissuade investors from supporting them. For example, the recently passed Republican tax bill aggressively phases out tax credits that have supported the buildout of renewable energy for almost 50 years, adding significant uncertainty and costs to future projects. Legal action and threats of revoking federal funding have pushed corporations, universities, and other institutions to shut down or scale back their DEI initiatives, thereby cutting opportunities for educational and economic advancement for people from marginalized communities and raising the costs of defending such programs. One recent example is the University of Denver cutting all race-based scholarships and DEI training for staff.
In a hostile environment, the risks of investing with care and conviction may be increasing, and for a time, that could make it less profitable—or even create losses. But a fundamental principle of investing known as the “risk-reward trade-off” also states that higher profits are only possible when taking higher risk. For example, fundamental economic tailwinds are firmly behind renewable energy because it’s the cheapest and fastest way to meet increasing demand for electricity due to the buildout of AI data centers and ongoing electrification, like heat pumps. And it’s been proven that companies with more diverse leadership outperform financially. We know we can do well by doing good.
At the same time, our conviction in the intrinsic value of socially and environmentally conscious investing requires that we look beyond profit and loss. We ask ourselves: Does the world need my investment? Are communities and the environment depending on me to do my part? Especially in these fraught times when a more just and sustainable future faces resistance on so many fronts, the answer is now more than ever: Yes!
