"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?