Responsible investing helps to identify companies that are more likely to outperform. “A quantitative approach that removes subjectivity has the advantage of making alpha generation in a repeatable process,” says Rohini Rathour, who is due to start work as Consultant to Arabesque.
Listed companies have many stakeholders, which they need to manage, as they are all relevant to a company’s operations. Although, equity shareholders are the most fickle as they can just buy and sell stock, their power is disproportionate as they are the funder of the last resort and influence the composition of the board of directors, says Rohini Rathou on cafemutual.com.
Still, companies must manage all their stakeholders well. “It hardly take a rocket scientist to work out that without customer loyalty, its suppliers’ willingness to supply reliably, its employees’ input into turning a promise to customers into a reality and the support of its government and regulators, the company cannot survive, let alone be profitable,” claims Rathour.
Environmental, Social and Governance (ESG) or Sustainable and Responsible Investing (SRI) screen companies not just to reduce company specific risk but also to identify those companies that are most likely to outperform. At Arabesque Asset Management, a quantitative approach is used towards sustainable investing to remove subjectivity and generate alpha repeatedly.