Effectual has been established by 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.
Framework
Methodology
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 US Environmental Protection Agency, the EU Commission, and the World Bank.
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.
Evidence
Externalities are increasingly seen as the key tool to manage the sustainable, long-term value of companies and investment portfolios.
