“AI is the most powerful and accurate tool to monitor companies’ ESG”. Interview with Olivier Khatib, CTO at Sensefolio
By: Altdata Insights
Tags: Portfolio, Esg, NLP, Investing, Machine Learning

How can asset managers benefit from Sensefolio ESG data?

Olivier Khatib

Asset managers can benefit from 4 main points:

Firstly, investing in ESG companies have generally a true and profitable impact over the medium to long-term performance of the company (*see disclaimer).

performance of the company (*see disclaimer). Secondly, as ESG is becoming more and more significant in today’s world of investing, it is essential to rely on scores that are updated as soon as new information are coming in .

. Thirdly, Sensefolio ESG data can provide a great tool kit for portfolio risk management . It allows managers to assess and monitor not only the risk of investing in a certain company, but also to position and locate this latter in the region it operates in or it is mainly dealing with.

. It allows managers to assess and monitor not only the risk of investing in a certain company, but also to position and locate this latter in the region it operates in or it is mainly dealing with. Finally, Sensefolio utilises sophisticated Machine learning and NLP techniques that allow machines to read more than 10,000 different sources of information (which means around 1 billion of data points when covering 20,000 companies) and interpret them as good as humans. You can’t read all of it, let the advanced machines do the hard work!

How strong is the relation between AI and ESG?

Regarding the relation between AI and ESG, it is fair to say that this relationship is reciprocal. Both side affects each other in a certain way, and they are actually contributing to one another. AI impacts ESG as more and more information become available online — coming from both internal and external stakeholders.

Businesses have to become more transparent as they evolve. However, some things they hide can sometimes be disclosed with AI, and it is really not businesses’ interest for it to happen as it can lead to a “Streisand effect”- impacting companies’ reputations significantly. Moreover, with Millennials and the Generation Z, a new category of investors is arriving to the investment space. They are more ESG demanding, more ethical and friendlier to the environment. Companies will have to adapt and cope with this growing demand throughout their whole value chain as AI will be able to capture most of entities’ relationships and acts.

On the other side, it is fair to say that ESG impacts AI. At Sensefolio, the more data we retrieve, the more accurate our algorithms become, and thus our ESG Ratings. By adding more and more information, our artificial intelligence algorithms are better trained and better able to distinguish a good information from a bad one.

What are the prospects for ESG and ESG data in general?

ESG is still in its development phase. No framework is yet widely recognized and no standard is widely adopted. The complexity is thus on the metrics used to fully monitor a certain company and their acts.

I believe ESG is becoming extremely popular and will be ubiquitous very soon in the world of investing. ESG data and metrics will be only one half of the ESG portfolio integration. A true ESG portfolio will also require actual involvement in the enterprises with their management and boards. Sensefolio allows managers to assess and monitor companies’ materiality and environmental, social and governance impact, both internally and externally. However, some decisions are made internally and not even employees and investors are aware of them. That is why monitoring a company on a regular basis with frequent meetings with the management will grant investors full insights for their portfolio construction.

In regards to ESG data in general, I strongly believe that ESG data based on A.I. will become extremely popular as they are the only ones able to monitor properly the materiality of companies. There is too much information out there, even if you hire a team of 200 people, you won’t get as much insight as sophisticated algorithms. This goes from reading each text to find the (hidden) links and relations between them.

Moreover, the big challenge is on the disclosures and reports from companies. Even though large companies in Western Europe tend to disclose most of their acts, it is still far from being the case in most of the other regions. That is why we believe, at Sensefolio, that alternative data are key to endeavour to capture more information from those “black-box” companies. As you cannot rely on those companies for their disclosures, we have to rely on alternative data and this is what we, at Sensefolio, are focusing on.

Would you have any recommendations for companies to attract more “ESG” investors?

Investors are fully aware that AI can contribute a lot to ESG investing — however, they are also aware that AI can be dangerous if we rely too much on it. As AI is not human, there are and will always be gaps in terms of analysing new information. However, if you assess the amount of information about a company that your machine can retrieve and integrate compared to what a human can do, I truly believe the accuracy tends to lie more onto the AI side.

Therefore a way that investors can engage to address AI concerns is to force companies to disclose further and deliver more information about their acts and behaviours.

Find out more about Sensefolio on: www.sensefolio.com