ESG –Building a bridge to the future by making the right decisions today

By Paul Woods, Director of Sustainability & ESG

The way we deliver on Environmental, Social and Governance (ESG) at Arrow aligns with our purpose of building better financial futures. At its core, this means that to deliver sustainable risk-adjusted returns for our investors, we operate as a responsible business that invests time and careful thought into creating successful, long-term, outcomes to the satisfaction of all our stakeholders. At the forefront of our positioning in the European financial eco-system, we see our role to help banks move illiquid assets off of their capital-intensive balance sheet thereby allowing their capital to be redeployed into the wider economy, driving investment, job creation and improved standards of living. We do this by deploying our unique combination of skills, experience and deep local market expertise to ensure excellent outcomes for the underlying customers, clients and assets.

Being a responsible participant in our markets and seeking to contribute positively to ESG matters is an integral part of our culture. Being a trusted steward of capital and a thought leader on the issues that impact all of our stakeholders is something we aspire to on a daily basis.

The 2021 ELFA (European Leveraged Finance Association) ESG survey results highlighted that 98% of respondents had declined, reduced or exited investment positions because of ESG issues in the last year – so we know that ESG matters across all sectors, and we understand its importance to the investment community. For the wider investment industry, including Arrow, it is critical to help investors understand which parts of their ESG profile we can support – and showing how this can be beneficial to all.

To that end, ESG has been part of our culture and values long before it became such a critical and well-recognised enabler of sustainable business. The way it is engrained in our business was demonstrated during the real-world stress scenario of Covid-19 – with support for our colleagues allowing us to maintain an engaged workforce, and responsibly provide servicing solutions to customers most vulnerable to the pandemic being at the forefront of those successes. The move to remote working, servicing on demand and increased customer forbearance were considered essential and implemented at pace. At the same time, as the world was reacting to the Black Lives Matter movement, Arrow began the next phase of its own diversity and inclusion journey engaging with independent experts to review key processes and policies to ensure that what we want to achieve is truly embedded in how we work. This is not a one-off project, but an ongoing effort that requires frequent and deliberate engagement. We do not believe this can succeed only as a management driven exercise – ensuring all colleagues feel empowered is what helps to drive meaningful and lasting results.

Why does this matter commercially? Quite simply, it is those types of behaviours and outcomes which will make the difference to companies succeeding in a post-Covid world – one where the expectations of the customer and employee have changed immeasurably and will impact performance linked to the retention and attraction of key talent from all backgrounds. We know that doing the right thing underpins our successful track record and drives greater credibility and recognition for our “local local” business experts who understand and serve their markets so well.  We understand why investors place such focus on specific ESG factors and we strive to benchmark ourselves in a realistic way that enhances our knowledge and improves our services, decision making and stakeholder outcomes. As we look forward, we believe that collective action across the sector and industry wide is critical to truly impact some of the challenges the world faces. Therefore, we support the work of the United Nations with regards to Global Compact and the Principles for Responsible Investment (PRI). The role of ESG in our investment decisioning process is one that builds on existing areas of policy, governance and risk appetite. In short, a natural evolution.

However, whilst Responsible Investment is a critical component of how we consider ESG factors internally, how we engage with the communities around us is equally as important. All our stakeholders are considered, and they are not mutually exclusive, what effects one, invariably affects another – today, we are all interconnected.

We invest our time, as well as financial support, to improve financial literacy in the communities where we are based, continuing our long-standing partnership with Junior Achievement Europe to enable our colleagues to volunteer to help teach students how to manage their finances responsibly as they enter adulthood. In 2021, despite the limitations of the pandemic, we still supported nearly 10,000 students with our financial literacy programme, embracing digital channels when face-to-face instruction was no longer possible. We have continued to do this as we feel strongly that all responsible businesses should align their ESG strategy to their corporate purpose and continue to execute as best as possible, even under the most trying circumstances. Purpose-based organisations are more successful and to attract, and retain, the best talent, it is imperative to find a lasting social cause that is aligned to your company’s philosophical heartbeat.

More broadly, even though are we not an energy intensive business, we also recognise that the realities of climate change and the environmental risks that this poses are elements that we all must engage with, both to protect the planet and its natural resources and to inform and improve our own decision-making.  Across our real estate opportunities, we consider the environmental outlook, align to local building standards, factor in the social benefits of any development and respect planning permissions which aid in the betterment of the environmental surrounding, emissions of buildings and carbon-offsetting.

In summary, the role of ESG in the modern world should be to challenge us, to push our thinking and drive innovation, and to ensure that as custodians of our business we ensure its long-term success by building a bridge to the future by making the right decisions today.