HSBC Launches AI Powered ESG Risk Improvers Index
(31 May 2023 - Global) HSBC has launched a global Index that uses artificial intelligence to help measure the improvement of a company’s ESG credentials and their potential for positive financial performance.
Developed by Arabesque AI and powered by data from ESG Book, the Index has been designed to track the performance of 1000-plus liquid stocks of global companies that are expected to benefit financially from improvements in their ESG risk.
Yasin Rosowsky, co-founder and VP of engineering, Arabesque AI, says: “Based on our back-tested data, tilting investments towards stocks exhibiting ESG momentum showed excess returns per annum versus S&P global benchmarks during the same period. In other words, there is a positive correlation between companies transitioning to more sustainable business practices and their returns.”
ESG Book calculates the ESG score of each constituent of the Index by deploying natural language processing to mine relevant public sources daily, such as ESG-related news and NGO data.
The ‘ESG momentum score’ is then computed by Arabesque AI every six months to determine whether each constituent has improved their ESG credentials. Investors will be able to invest in a range of products tracking the Index, allocating capital toward ‘ESG improvers’.
Patrick Kondarjian, global head of sustainability for markets & securities services, HSBC, says: “The HSBC ESG Risk Improvers Index enables investors to gain exposure to stocks exhibiting ESG momentum — a useful financial indicator of future performance. This is in contrast to traditional ESG best-in-class, or ESG integration, investment approaches that purely target high ESG ratings - agnostic to whether the stock’s ESG credentials have recently improved or deteriorated.”