"The job of Arabesque S-Ray is to move money from the bottom of the ESG (Environmental, Social and Governance) value chain to the top, by assessing the sustainability performance of over 4,000 companies worldwide. This will help investors to take action and require corporations to think about their future place in that value chain." That's Omar Selim, founder and CEO of Arabesque, talking about the firm's proprietary analytics tool that is now available to U.S. investors, along with investor shares of the Arabesque Systematic USA Fund.   

Arabesque was developed in 2011 by Barclays Bank PLC in London. In 2013, its senior management bought out all rights and intellectual property and established Arabesque as an independent firm.

Barbara Krumsiek, former CEO of Calvert Investments and now a non-executive director of Arabesque says what attracted her most to the firm was the people. She joined the board at the request of Georg Kell, the vice chair and founder of the UN Global Compact, after meeting CEO Omar Selim in 2016. "I think Arabesque is also taking advantage of one of the tidal wave trends of the last five years, which is the availability and use of data. It’s the next gen of investment analysis." In addition, Krumsiek likes that Arabesque concentrates on ESG integration as a mainstream approach to portfolio analysis. "From the ground up, Arabesque was founded with this principle in mind", she says.

Most intentional ESG managers in the United States source data from analytics firms in addition to their own research. Andreas Feiner, a founding partner and head of ESG advisory, says Arabesque builds its data sets for company analysis by sourcing a lot of raw data points from third party providers as well as creating several proprietary scoring metrics for each company from Arabesque's 100 billion data point base. "Raw data is information without interpretation," explains Feiner. "For example, the percentage of a company's energy consumption needed to manufacture a product line, the number of women on the board of directors or the hourly wages paid to employees of supply-chain firms in developing markets." 

The raw data, according to Feiner, is grouped into 12 sub-categories. "This first mapping helps us to develop company risk profiles within an industry classification. Examples would be the sourcing of natural capital for products, how does a company manage its waste and what are its environmental opportunities?”

"We then combine the Arabesque internal ESG score with other raw data to determine the material effect of that data on company performance. This is the basis of our Oxford research report."

"Financial Advisors in the U.S. should understand that this is not a green niche,” adds Feiner “but a way to help investors make more money and be in alignment with ESG and sustainability metrics as fundamental to portfolio construction."

So how does a quantitative, rules-based, ESG analytics process like Arabesque's fare when it is used to support investment firms and coalitions of stakeholders related to active ownership advocacy issues? 

According to Arabesque's board vice chair, Georg Kell "These tools allow investors to single out the best and worst performers. They can make comparisons across industries and countries, which is a powerful way of rewarding as well as shaming in certain circumstances."

Investors can do ESG metric segmenting within their portfolios. "For example," Kell notes "human rights advocates complain that their issues get sidelined because investors tend to measure what’s convenient instead of what is impactful. ESG metrics have become a lens through which to shine a light on the issues that are important to the particular investor or advocacy group."

"Asset managers like Arabesque, that have invested heavily in sustainability can now be appreciated," says Kell "and the process can reveal the laggards to stimulate change among that group."

"I see Arabesque as having unlimited opportunity in the U.S.,” says Krumsiek “with pension funds and high-net-worth individuals looking for bespoke investment solutions, as well as endowments and foundations, which are embracing ESG strategies through their consultants."

"Arabesque will also appeal to retail investors through its recently launched Systematic USA Fund, a 40 Act mutual fund administered here and offered through U.S. distribution platforms and RIAs."

Feiner adds "The reason Arabesque was started is to channel capital into better run companies whose products and services have value for consumers and society, and to make more money for investors. As long as we deliver on this mission we will have a huge market." 

"The three things we must do to be successful here in the U.S. are: first, continue the focus on performance and show that ESG supports that; second, use the available data to do good research; third, communicate this message to mainstream investors using available media tools."  

Krumsiek says "It’s a tribute to the foresight of Arabesque's founders that they are very grounded in research. Robert Eccles, the chairman of the board, is an icon in the academic world after a distinguished career at Harvard and now Oxford. He is a thought leader in the field of creating sustainable value through ESG." 

CEO Omar Selim says ESG is "the fourth dimension of investing, which give investors more information about the DNA of a company. For example, how risk taking or risk averse is the management. We believe the ESG data set is about 10 percent today of what it will be in the future."

Paul Ellis founded Paul Ellis Consulting to work with financial advisors who want to integrate sustainable and impact investment strategies for their clients.