One of America's top-ranked fund managers of 2019 dominated the market with an ESG fund. He told us why it makes for better companies, and isn't just a way to feel good about your portfolio.

• Joe Hudepohl of Atlanta Capital told Business Insider how environment, social, and governance criteria were critical to the Calvert Equity Fund, one of the best-performing funds of 2019.
• Hudepohl rejects the idea that ESG is a feel-good way to avoid unpopular companies. He says it's a way to find companies with traits that will help them outperform and avoid those facing big threats.
• Atlanta Capital's managers focus on companies with quality earnings, and Hudepohl says ESG contributes to that approach - and will continue to do so as markets stay volatile.
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If you think socially responsible investing is just a nice idea, a way to feel warm and fuzzy about investing that won't do much for your portfolio, Joe Hudepohl is hard to explain.

Hudepohl, a portfolio manager for Atlanta Capital who focuses on growth equities, ran two of the best-performing mutual funds of the past year. One of them - the Calvert Equity Fund - is an environmental, social, and governance fund.

The Calvert Fund has beaten out the broader large growth category over the past decade, and it outperformed the Russell 1000 index in both 2018 and 2019, with a 35.4% total return as of December 16. It was also the third-best-performing large-cap equity fund of 2019 through September 30, according to rankings maintained by Kiplinger.

"You're not just here to have a feel-good portfolio," he told Business Insider in an exclusive interview. "We're hoping with this portfolio to change that perception."

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Hudepohl and his firm focus on quality earnings first and foremost, and he says measurements of ESG can shed a lot of light on a company's strengths. He argues that that's been a major boon to his performance.

"ESG is really another lens of quality," he said. "It's a way of trying to characterize the non-financial assets of a company and look at those through a different lens."

Hudepohl added: "We're here for returns, and we think by trying to find a pool of stocks that are high quality, growing, sustainable businesses ... we can deliver outperformance over time."

That principle is fairly well understood when it comes to a company's governance since investors are willing to pay for attributes like transparency and management accountability. But Hudepohl says that it goes further than that and includes factors that directly affect how well a company and stock perform.

"'E' can be energy efficiency of your own firm," he said, by way of example."Yes, it's good for the environment, but it's also good for business if you're lowering your costs."

He adds that the same holds for social characteristics, as his team keeps in mind the link between diversity and company performance, and looks at company's ratings on Glassdoor to see if its employees are leaving positive comments.

"Businesses that have happy employees generally do well over time," he said.

At the same time, he says ESG criteria can help him avoid companies that have long-term risks and liabilities that will damage their performance and lead to permanent losses for his investments.

That approach seems to have worked for Hudepohl during both good times and bad, and he's betting it's nowhere close to changing.

"My guess is volatility will continue, somewhat like we've seen in the last 12 months, which again, I think is generally favorable towards high quality businesses and the businesses that we focus on."