ESG investing using artificial intelligence

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Data science and enormous computing power such as artificial intelligence are now able to provide new ESG insights to investment managers

ESG investing will meet artificial intelligence and combine to two of the strongest trends in finance.

Until recently, unstructured, voluminous and incompatible data presented a challenge to investors and asset managers seeking ESG-friendly investments. Artificial intelligence (AI) could change all that with its capacity to crunch vast amounts of data and throw Up new insights not available through other, traditional methods.

Missing the wood for the trees

A case in point is Ball Corporation, one of the largest manufacturers of aluminum cans in the United States. Traditional models assess the company with a poor ESG rating due to the high energy consumption in its manufacturing process.

However, a data science team working with Neuberger Berman made a big discovery while analyzing Ball’s ESG data. They found that over 75% of all aluminum produced is still in use today. This discovery puts an entirely different perspective on the energy consumed in its manufacturing processes.

The team concluded that the company could be re-rated and therefore presented an opportunity for outperformance in the future.

A Growing Trend in ESG Investing

A recent BNP Paribas Securities Services survey showed that roughly 75% of asset owners and 62% of asset managers now hold at least 25% of their investments in funds incorporating environmental, social and governance (ESG) factors into their strategy.

Those former figures have increased from 48% and 53%, respectively, since 2017.

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January 29, 2020

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