Investors care about expected risk and return. To this end, our investment tools aim to maximise impact and risk-adjusted returns. We define impact as a positive change in E, S or G outcomes.
Investors have two levers to promote sustainability:
- “Funding” channel: by deciding to invest in -or divest from- firms based on their ESG practices, investors reward ESG leaders with a lower cost of capital and vice-versa for ESG laggards.
- “Engagement” channel: by voting and engaging with company management to adopt better ESG practices, investors can help firms improve their corporate fundamentals.
We have developed tools to facilitate both levers, while aiming to boost risk-adjusted returns:
- “Funding” channel: 3D optimisers. Many investors build ESG portfolios using “rules of thumb” (screening, exclusions, best-in-class…). However, such approaches may lead to sub-optimal capital allocation decisions. Back in 1952, Nobel Prize laureate Harry Markowitz developed a portfolio optimiser for investors to find the most efficient trade-off between risk and return. We add a third dimension: impact. Our 3D optimisers maximise impact while maximising returns and minimising risk.
- “Engagement” channel: Engagement maximiser. The engagement maximiser identifies which E, S or G improvement(s) could raise shareholder value -as measured by the share price- most for each firm. Focusing on financial materiality to create shareholder value is likely to prove persuasive with companies’ management and fellow shareholders, creating a virtuous circle between impact and returns.
We believe ESG tools that help boost risk-adjusted returns can have outsized impact