By Meike Schreiber, Frankfurt
The Frankfurt financial center does not come up with promising young companies every day. When something supposedly promising comes up, everyone wants to be part of it. "Fomo" means this phenomenon in Internet language, fear of missing out, the fear of missing something. In 2019, this phenomenon brought together the who's who of the German financial industry: Several corporations invested in a young Frankfurt company called Arabesque, which after its founding in 2013 first wanted to revolutionize the business with "green" investments, then also with sustainability data and artificial intelligence.
Because sustainability is the big trend in business: Investors want to invest their money in an environmentally friendly way, banks want to protect the climate and fund companies want to support the fight against exploitation and environmental destruction. The abbreviation for the trend is ESG – which stands for environmental aspects (environment), social criteria (social) and the rules of good corporate management (governance). However, it is difficult to develop a business model from these abstract concepts, in any case Arabesque is still waiting for the breakthrough. After all, the start-up now seems to have raised new money.
There is already a lot of capital in the company from well-known financiers: the Hessian Ministry of Economic Affairs invested two million euros in tax money in S-Ray, the data division of Arabesque. Another 18 million came from Allianz, Deutsche Bank subsidiary DWS, Commerzbank and Landesbank Hessen-Thüringen, Helaba for short, and the Accenture consultancy. This money ensured survival at the beginning, and the prominent consortium acted like a seal of approval. For its advisory board, the company hired prominent representatives such as the former Deutsche Bank boss Jürgen Fitschen, and at times also ex-vice chancellor Philipp Rösler. At the end of 2019, DWS even went further and gave another eight million euros for an Arabesque subsidiary that combines sustainable investment criteria with artificial intelligence. The technology has the potential "to help sustainability make a breakthrough across global markets," explained DWS.
But that hasn't happened yet, and sales haven't grown fast enough. In any case, the founders around Omar Selim, the former German boss of the British investment bank Barclays, are in the process of raising fresh money. According to SZ information, a consortium around the venture capital fund Energy Impact Partners, based in New York, London and Cologne and specializing in sustainability, is said to be ready to invest 40 to 50 million US dollars in the Arabesque S-Ray data division. According to reports, the investors probably want to acquire 20 to 24.99 percent, which would mean S-Ray would be worth up to 250 million dollars. Corresponding key data papers have already been drawn up, two insiders told the Süddeutsche Zeitung. Arabesque and Energy Impact Partners left several inquiries about this unanswered.
"Neither ESG nor transparent"
There have been indications of a tight budget for a long time, and internal displeasure seems to be growing. A few weeks ago, on a portal for evaluating employers, an unnamed employee criticized that the company now pays its employees at the end of the month instead of at the beginning of the month, citing technical reasons for doing so. This is neither transparent nor "ESG", criticizes the employee, who, among many other things, also complained about a lack of inclusion and diversity. This measure can be used to give yourself a little breathing room with financial obligations. The company also declined to comment. The post has since been deleted.
In fact, Arabesque has not yet been able to benefit from the green financial investments business, based on the most recently published figures: According to this, the company, which has its headquarters in London, almost doubled its losses to a good £11.4 million in 2020 due to significantly increased costs. Revenue from customer contracts rose just 38 percent to £3.4 million. Earlier, Arabesque announced it would report earnings in 2021.
Why is that? Has the goal been achieved? The company does not want to say anything about this. However, investor Helaba announced that "an expansion of the commitment" to Arabesque was "not planned". Commerzbank indicated that it wanted to part with the stake. DWS even wrote off its stake in the artificial intelligence division, according to the recently published annual report.
The new investors may be relying on Arabesque S-Ray's latest project: on a platform called "ESG Book", companies should voluntarily provide information on sustainability and make it accessible to a wide audience. The data should be "available to all stakeholders free of charge" and presented "independently and impartially". Arabesque was able to win prominent supporters for it: A number of well-known financial companies are once again behind the initiative, including Allianz and Deutsche Bank as well as the major British bank HSBC and the reinsurer Swiss Re. Everyone wants to be part of the "ESG" trend.