Stockholm (NordSIP) – “Coming to Sweden is like a breath of fresh air,” says Georg Kell, Chairman of Arabesque and co-founder of the UN Global Compact, as we sit down on a bright Stockholm afternoon. “It’s like coming to a sunny island in the middle of a storm. As I travel, I meet autocratic and dictatorial regimes, corruption and crisis across the continents. Here, people do really great work, and they are sincere about it.”
Kell is in an exceptional position to observe the trends and advances of sustainable investment practices across geographies, as he travels the world as an ambassador for Arabesque. He is particularly enthusiastic about the firm’s S-Ray, a tool that allows anyone to monitor the sustainability of approximately 7,000 – and growing – of the world’s largest corporations. “We realised a year ago that the data we have can have a tremendous impact,” says Kell. “We provide access to this data to everyone at a minimal cost (or no cost at all), as we believe that if investors and even corporates embrace big data in the context of sustainable investing, we can accelerate the movement as a whole. The S-Ray is a diagnostic tool but also an entry point into ESG. We are pleased that many large institutions have embraced the tool: State Street, BNY Mellon and GPIF, the world’s largest pension funds, just to mention a few.”
The roll-out of the S-Ray has only started. “The S-Ray technology has an enormous capacity for further development and refinement,” Kell continues. “Right now, we can probably only unlock 10%. Our next step will be to develop theme-specific data and filters to model the Sustainable Development Goals (SDGs). This fall, we will come out with a new climate angle, which will be the first of its kind. Other SDG-related themes like water, women empowerment and children and human rights are getting a lot of attention at the moment, and data quality is improving all the time, even in those areas. With the S-Ray, we try to apply AI-derived mechanisms, such as self-learning, which can help to establish materiality between the different data points for example.”
Kell and Arabesque have found key partners in Sweden from the onset. “Here we have found so many like-minded people with excellent intentions, and having strong partners is really important when it comes to changing habits and doing away with old myths,” emphasises Kell. “The idea that sustainability comes at the expense of return is a myth that still represents a challenge in many places, even if the evidence to the contrary is now overwhelming. The right tools are not always readily available, and the data is fragmented and imperfect. Quantifying the risk and performance related to sustainability remains a challenge, and that one of the reasons the S-Ray is so useful.”
In Sweden, a paradigm shift has already taken place. “The first steps into sustainable investing are often defensive. Investors think in terms of exclusions while failing to realise that there are opportunities. But in the meetings we are having now, we see a real shift. The local institutions talk about optimisation rather than exclusion. Swedish institutional investors have managed to keep an open mind about changes, whereas sources of phlegm and inertia can be so frustrating in other countries. Sweden has the potential to become the leading force for sustainable finance. I’ve observed that Swedish actors often under-communicate but outperform. The country already leads in other dimensions. Public policy has focused on the climate for a long time already, and it has driven a tremendous amount of innovation. Corporate disclosure and governance have also been amongst the most advanced in the world. I have been involved in anti-corruption discussions in Brazil, and we were looking at Sweden as the absolute benchmark,” concludes Kell.
In addition to the S-Ray system, Arabesque offers systematic strategies, amongst which one fund in Swedish Kronor, which is not only available to institutions, but also to individual investors on local platforms such as Handelsbanken, Aktieinvest and soon also Avanza and Nordnet. “We are pleased with the performance,” comments Maria Mähl, Head of Nordics at Arabesque.” Arabesque Systematic has returned +10.22% per annum since inception in August 2014, and ranks within the top 5% of its Morningstar peer group. Both Kell and Mähl are excited to see the enthusiasm for the fund in Sweden, but they also see the interest picking up in the US: “The Trump effect has actually strengthened people’s interest in questions of sustainability. We are expanding rapidly over there, and have ambitious plans,” she adds.
Picture © Maria Mähl, Arabesque