HSBC has launched a global Index that employs artificial intelligence to assess the enhancement of a company’s ESG credentials and their potential for positive financial performance.
Developed by Arabesque AI and utilizing data from ESG Book, this Index is designed to monitor over 1,000 liquid stocks from global companies expected to benefit financially from improvements in their ESG risk profile.
Yasin Rosowsky, co-founder and VP of engineering at Arabesque AI, states: “Based on our back-tested data, shifting investments toward stocks that demonstrate ESG momentum has yielded excess returns per annum compared to S&P global benchmarks during the same timeframe. This indicates a positive correlation between companies adopting more sustainable business practices and their financial returns.”
The ESG score for each constituent of the Index is calculated by ESG Book using natural language processing to analyze relevant public sources daily, including ESG-related news and NGO data.
Arabesque AI computes the ‘ESG momentum score’ every six months to assess whether each constituent has improved its ESG credentials. Investors will have the opportunity to invest in a variety of products that track the Index, directing capital toward ‘ESG improvers’.
Patrick Kondarjian, global head of sustainability for markets and securities services at HSBC, remarks: “The HSBC ESG Risk Improvers Index enables investors to access stocks showing ESG momentum, serving as a valuable financial indicator of future performance. This contrasts with traditional ESG best-in-class or ESG integration investment strategies that focus solely on high ESG ratings, without considering whether a stock’s ESG credentials have improved or declined recently.”