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GLOBAL: Values-based
asset manager Arabesque Asset Management has launched a report entitled
‘From the Stockholder to the Shareholder’ in collaboration with Oxford
University interactive hub, the Smith School of Enterprise and the
Environment (SSEE). Focused on sustainability, the report identifies the
movement as one of the most significant trends to have emerged in the
financial market in decades.
Co-authored by Arabesque and Professor Gordon L Clark, the director of
the SSEE, the report on sustainability in global finance to date, is
based on more than 190 different sources including academic studies,
industry reports and books. Key findings indicate that the trend in
sustainable investing is expected to strengthen, with 90% of the studies
on the cost of capital showing that high sustainability standards lower
the cost of companies’ capital. A majority of the research (88%) shows
that robust environmental, social and governance (ESG) practices result
in better operational performance of firms while 80% of the studies
demonstrate that stock price of companies is positively influenced by
good sustainability practices.
Arabesque, which was established in June 2013, has launched three Shariah
compliant global funds: Arabesque Prime, Arabesque Fundament and
Arabesque Systematic, which utilize the values of the UN Global Compact and
UN Principles for Responsible Investments as well its own proprietary
portfolio management technology to offer sustainable investment
opportunities. Speaking to Islamic Finance news, Andreas Feiner, the head of
values-based research and advisory at Arabesque, explained the purpose of
the report: "It is about about research, and this is what we have
done with the University of Oxford. We demonstrate that sustainability
and good performance are in fact wholly complementary and can go hand in
hand."
Key areas outlined in the case for sustainability in business include
risk, performance and reputation; the cost of capital, operational
performance and stock prices. The report highlights the ways in which
good ESG quality leads to competitive advantages including examples such
as Coca-Cola, which has reduced the water intensity of their production
process by 20% over the last decade; and UK-based retailer Marks and
Spencer which saved US$200 million annually by introducing ‘Plan A’,
enabling the firm to source responsibly, reduce waste and help
communities. Active ownership, the use of tools including proxy voting,
shareholder proposals and management dialogue by investors to influence
companies with regard to issues on sustainability is also highlighted as
a crucial resource that has not yet been fully utilized by the general
customer to affect change.
The findings of the report make the case for responsibility and
profitability being wholly complementary, with documentation identifying
an 80% positive correlation in studies between good sustainability and
equity performance. The firm believes that the corporate and financial
community is close to a tipping point in terms of sustainable investment,
with active ownership moving to play a larger role in setting the agenda
in terms of sustainability within investment. As Feiner states: "We
set out to make a business case that for companies it makes economic
sense to implement sustainability parameters into their corporate
management decisions."
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