Effectual Framework
Effectual has been established by the investment office Perpetual, seasoned investors and financial economists to build and implement a rigorous framework for managing investments with a view to long-term, sustainable value creation. The Effectual framework applies classical economics and modern portfolio theory to build investment strategies that aim at performance through sustainability.
Methology
We measure the sustainability of companies or investments by their sustainable return, which corrects traditional financial return by the costs and damages to society and the environment (“externalities”).
We estimate externalities using methods that have been developed and are being applied by the public sector, e.g. the U.S. Environmental Protection Agency, the EU Commission, and the World Bank.
Externalities
Climate change
Air pollution
Water
Waste
Labor
Knowledge
Communities
Universe
29,000+ securities
12.000+ firms
106 countries
12 sectors, 68 industries, 224 sub-industries
[2.5mn+] data points
Advantages
When externalities are being internalized, the sustainability of firms will affect future cash flows and market values. Investment strategies following sustainable return will outperform. However, this requires the right measure of sustainability – externalities.
Comprehensive
An intuitive metric applicable to all asset classes, core portfolios and external effects, extending beyond financial models.
Objective
A mathematical model with parameters from published research, based on observable data, offering simple and clear aggregation.
Verifiable
Grounded in academic consensus and strong economic theory, this approach is entirely evidence-based.
