With over $40 trillion of global sustainable assets around the world, sustainable investing has become one of the fastest-growing segments in the asset management industry. With such sustained growth over the past years and positive forecasts on asset growth, sustainable investing is now finding its way in investors’ strategic asset allocations.
In this paper, V-Square Quantitative Management sets out the evolution of its approach to sustainable investment. VSQM describes itself as an alpha-driven integration of sustainability into portfolios, and is a signatory to the UN-supported Principles for Responsible Investment.
The “roadmap” to generating sustainable investment returns aligned with the sustainable development goals requires intentionality and purpose. Founder and CEO of VSQM, Mamadou-Abou Sarr, formulated a “GPS approach” to sustainable investing, and launched the fund to “share that knowledge with a targeted impact, whilst focusing on materiality and profitability”.
The VSQM team became interested in the algorithm behind GPS systems as their effectiveness is built on identifying the shortest paths between nodes and complex road networks. The world of ESG data is becoming as nebulous and complex as road networks and there’s value in simplifying the pool of data by focusing on financially material ESG signals run through a Dijkstra Algorithm. The algorithm exists in many variants and is conceptually applied to a modified form of the ESG and finance conundrum.