“Innovation only makes sense if it becomes mainstream, otherwise you are barking up the wrong tree,” Bruno de Kegel, founder and COO of Arvella Investments, told thewealthnet.
Having won the PAM Award for innovation this year, the firm is certainly considered a leading voice in this regard.
For this reason, Arvella Investments has made a series of ESG tools available for free to professional investors.
The tools can be used alone, or to complement existing sustainable risk rating and analytics solutions.
Currently, two tools are available.
The first is the 3D (Risk-Return-Impact) Portfolio Optimisers. Most investment managers have been brought up in a two dimensional world of risk and return, Mr de Kegel explained. This tool treats ESG as the third dimension.
These optimisers were designed to boost traditional “rules of thumb” – such as screening and best-in-class, with science.
Many ESG investors still use such “rules” to build portfolios, leading, according to Arvella, to sub-optimal capital allocation. By adding impact as a third dimension, Arvella’s 3D optimisers should enable investors to maximise impact without straying from their financial goals.
The second tool currently on offer is the ESG Engagement Maximiser.
This is designed to help investors prioritise which two or three company-specific ESG improvements can unlock the most shareholder value for a universe of approximately 2,200 companies.
This tool can be used in conjunction with analytics offerings and in-house research, to hone in on impact outcomes. The aim is to allow investors to take a data set and find out which two or three ESG improvements could boost each company’s value the most.
The potential financial gains are large. For those not interested in sustainability, there is a strong financial case to adopt these tools.
According to Arvella’s research, if all firms in its database were to bring two of their most relevant ESG metrics in line with peers’ best practices, the average potential share price upside is 20 percent.
Within companies, the notion of “more money” is likely to prove more persuasive with management and shareholders than “more impact,” creating a virtuous circle between impact and returns, Arvella explained in a press statement.
Arvella is not looking to make money from this. Instead the firm is looking to foster greater collaboration across the industry.
It is looking to partner with academics and other similarly aligned firms to conduct research projects and develop more tools. These will then be made available via Arvella’s website.
The first firm to partner is Fulcrum Asset Management.
Nabeel Abdoula, deputy CIO at Fulcrum AM, said the firm is delighted to work with Arvella.
“We’re proud to be ESG for Investors’ first investment house partner and are contributing an ongoing research resource to this important project.”
The two firms have an existing relationship, with Arvella having been involved in the development and launch of the Fulcrum Climate Change Fund in July last year.
Mr de Kegel concluded: “The change is only going to happen if not only we are doing it, but everyone else is doing it too. Otherwise it is going to be too little too late.”