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There’s No Such Thing as an “ESG Stock”
February 14, 2025
Jim Madden, CFA, Tony Tursich, CFA, and Beth Williamson
Below, we answer four questions we’re often asked about ESG investing. The answers may surprise you!
What is an ESG stock?
This question has different answers for different folks. But for the Calamos Sustainable Equities team, the answer is very clear and has been for decades. There is no such thing as an ESG stock.
People may find that answer confusing, especially as we are often viewed as “ESG” investors. In fact, we are first and foremost quality-focused growth investors. The question for us has always been, “What is a quality stock?”—with quality having two dimensions: strong financial characteristics and strong nonfinancial characteristics.
This nonfinancial bucket is where sustainability, governance, and environmental and social considerations come into play. We believe companies that treat employees well, take a proactive approach to environmental risks and opportunities, and collaborate with the communities where they do business have a competitive advantage over those that do not. In our experience, these proactive companies have a higher probability of creating value and mitigating risk.
How much of a company’s success is due to how it approaches ESG?
From our perspective, a firm’s ultimate success is inextricably intertwined with its nonfinancial performance.
For example, a company that produces the most energy-efficient product in its industry could be identified as an “ESG” company. However, from our perspective, what is more important is that there is growing demand for energy-efficient products. It is this demand that provides an opportunity for higher growth and margins.
For a company to succeed, it needs a good concept, a good business model, and strong execution. Many “ESG” companies stop at “concept” and, therefore, have smaller chances for success. In the context of consumer products, consider a hypothetical “ESG” company that crafts an “ESG” brand but fails to deliver a sustainable product that can drive higher volumes or a price premium. Without an appealing product that consumers are willing to pay for, the brand set to fail.
Why is return on invested capital (ROIC) such an important metric?
The ability to produce excess capital to reinvest back into the business is a defining feature of a quality growth company. The reinvestment enabled by high ROIC fuels a company’s ability to innovate, and we believe innovation is the only way to achieve prolonged success. Without high ROIC, pharmaceutical company Novo Nordisk would never have had the capital to develop its blockbuster GLP-1 weight loss drugs. The company would still be primarily focused on insulin, and its fundamentals would be much weaker. A company’s innovation must be successful, which is not a given, but without high ROIC, it becomes even harder.
Why don’t you invest in energy?
Actually, we do! We are very bullish on energy, just not as energy is defined by S&P and MSCI, which is essentially oil-and-gas exploration-and-production. When our team launched our first fund in 1999, we felt the traditional energy sector was in secular decline. It was becoming harder to get materials out of the ground, regulation was running against the industry worldwide, and renewables were getting cheaper. Our long-term outlook on the energy sector has not changed. That said, we see many ways to invest in the growth of other forms of energy, especially given the trillions of dollars spent on the energy transition. We’re especially excited about companies at the cutting edge of electrification, a powerful global growth megatrend (see our post “Investing for Growth: 4 Global Megatrends”).
As of February 11, 2025, SROI’s largest 10 positions were as follows: Alphabet, Inc. - Class A, 4.8%; Microsoft Corp., 4.5%; Apple, Inc., 3.8%; NVIDIA Corp., 3.4%; Taiwan Semiconductor Manufacturing Company, Ltd. (ADR), 3.1%; SAP, SE, 2.1%; Visa, Inc. - Class A, 1.8%; Broadcom, Inc., 1.8%; TJX Companies, Inc., 1.6%; BYD Company, Ltd.-Class H, 1.5%.
Opinions, estimates, forecasts, and statements of financial market trends that are based on current market conditions constitute our judgment and are subject to change without notice. The views and strategies described may not be appropriate for all investors. References to specific securities, asset classes and financial markets are for illustrative purposes only and are not intended to be and should not be interpreted as recommendations.
Before investing, carefully consider the fund’s investment objectives, risks, charges and expenses. Please see the prospectus and summary prospectus containing this and other information which can be obtained by calling 1-866-363-9219. Read it carefully before investing.
Environmental, social and governance (ESG) is based on the premise of investing in companies that have good environmental records, are ethically run and have a positive social impact.
An investment in the Fund is subject to risks, and you could lose money on your investment in the Fund. There can be no assurance that the Fund will achieve its investment objective. Your investment in the Fund is not a deposit in a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation (FDIC) or any other government agency. The risks associated with an investment in the Fund can increase during times of significant market volatility. The Fund also has specific principal risks, which are described below. More detailed information regarding these risks can be found in the Fund's prospectus.
The principal risks of investing in the Calamos Antetokounmpo Global Sustainable Equities ETF include: equity securities risk consisting of market prices declining in general, growth stock risk consisting of potential increased volatility due to securities trading at higher multiples, value stock risk, foreign securities risk, forward foreign currency contract risk, emerging markets risk, small and mid-sized company risk and portfolio selection risk. As a result of political or economic instability in foreign countries, there can be special risks associated with investing in foreign securities, including fluctuations in currency exchange rates, increased price volatility and difficulty obtaining information. In addition, emerging markets may present additional risk due to potential for greater economic and political instability in less developed countries.
The Fund's ESG policy could cause it to perform differently compared to similar funds that do not have such a policy. The application of the social and environmental standards of Calamos Advisors may affect the Fund's exposure to certain issuers, industries, sectors, and factors that may impact the relative financial performance of the Fund-positively or negatively-depending on whether such investments are in or out of favor.
Calamos Antetokounmpo Asset Management LLC ("CGAM"), an investment adviser registered with the SEC under the Investment Advisers Act of 1940, serves as the Fund's adviser ("Adviser"). CGAM is jointly owned by Calamos Advisors LLC and Original C Fund, LLC, an entity whose voting rights are wholly owned by Original PE, LLC which, in turn, is wholly owned by Giannis Sina Ugo Antetokounmpo.
Mr. Antetokounmpo serves on the Adviser's Board of Directors and has indirect control of half of the Adviser's Board.
Mr. Antetokounmpo is not a portfolio manager of the Fund and will not be involved in the day-to-day management of the Fund's investments, and neither Original C nor Mr. Antetokounmpo shall provide any "investment advice" to the Fund. Mr. Antetokounmpo provided input in selecting the initial strategy for the Fund.
Mr. Antetokounmpo will be involved with marketing efforts on behalf of the Adviser.
If Mr. Antetokounmpo is no longer involved with the Fund or the Adviser then "Antetokounmpo" will be removed from the name of the Fund and the Adviser. Further, shareholders would be notified of any change in the name of the Fund or its strategy.
Giannis Sina Ugo Antetokounmpo is the majority shareholder of Original C, with a 68% ownership interest.
The Adviser is jointly owned and controlled by Calamos Advisors LLC and, indirectly, by Mr. Antetokounmpo, a well-known professional athlete. Unanticipated events, including, without limitation, death, adverse reputational events or business disputes, could result in Mr. Antetokounmpo no longer being associated or involved with the Adviser. Any such event could adversely impact the Fund and result in shareholders experiencing substantial losses.
Top 10 Holdings and Sector Weightings are calculated as a percentage of Net Assets.
NOT FDIC INSURED | NO BANK GUARANTEE | MAY LOSE VALUE
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