Artificial intelligence (AI) is an increasingly important part of the way we work, live and play.
The digital assistant in your smartphones, self-driving vehicles and even your Roomba vacuum have harnessed this technology to make the mundane and everyday more seamless.
But what if I told you AI was making its way to the boardroom?
As environmental, social and governance (ESG) considerations become more fundamental to a company’s operations, businesses are turning to the power of AI to better their practices.
So just how is this technology impacting the working world, and what’s on the horizon for AI-powered ESG reporting?
How could AI empower ESG practices?
Companies have just started to skim the surface when it comes to ESG reporting. And that means data surrounding their practices can be varied, inconsistent and difficult to wrap your head around.
A December report from international hedge fund WorldQuant says datasets tracking ESG factors often leave much to be desired.
“Investors continue to struggle with questions about ESG data collection and interpretation. The absence of standardised ESG datasets and reporting methodologies makes it difficult for issuers to disclose meaningful information on sustainability," the report stated.
“Data may not be widely available or manually collected by analysts, leaving data providers little choice but to produce subjective qualitative assessments.
“Such an approach means that different ESG research companies and data providers use their own, often inconsistent methodologies to generate ESG scores."
But WorldQuant believes better data and better data tools — empowered by AI — could resolve many of these issues.
“The good news is that tools now exist that were not available even a few years ago,” the report stated.
“Sophisticated players are learning how to use AI techniques like machine learning, deep learning and neural networks to significantly improve the quality and amount of usable data, and to analyse it more effectively.”
The rise of AI in the workplace
In recent years, AI has gained ground as a way for companies to generate further value.
Management consultancy McKinsey & Company’s report ‘The state of AI in 2020’ tracked how businesses were bringing machine technology into their operations.
A global survey from the firm revealed half of the respondents reported that their companies had adopted AI in at least one business function.
What’s more, 22% of those surveyed said at least 5% of their companies’ earnings before interest and taxes (EBIT) were attributable to AI.
Fast forward to today, and companies are investigating how AI can provide further benefits across other aspects of their business — such as emerging ESG functions.
How can AI support ESG investing?
Introducing AI to the world of ESG doesn’t just pose benefits for companies: investors also stand to benefit from the growing synergies.
In a 2020 report, financial analytics corporation S&P Global described AI at the crossroads of technology, innovation and sustainability.
“Artificial intelligence allows investors to collect and analyse more information than ever before when accounting for environmental, social, and governance risks and opportunities,” the report stated.
“AI can help sustainable investors process mountains of data that hold essential information for ESG investing.
“Computer algorithms that have been trained to find and analyse tone and content can digest all of the information available about a company, which can be a massive task for human employees to do at a reasonable speed."
While S&P admits AI is still finding its feet in the ESG realm, it reckons machine tech could have positive implications for investors down the line.
“If the promise of these AI technologies is solidified by the results of their output, ESG investing could become more methodical and accessible,” the report concluded.
Introducing AI to ESG reporting
As ESG reporting comes to the fore as a key consideration for investors and companies alike, there’s room for AI to really shine.
Last year, UK-based fintech All Street launched Sevva, the world’s first AI platform to provide ESG ratings for any public or private company.
Sevva’s real-time ratings are based on the United Nations’ Sustainable Development Goals (SDGs) and cover all 70,000 publicly listed companies globally, any private company and any fund.
Essentially, the platform’s cognitive robots read millions of ESG data points from all publicly available information to automatically calculate ESG ratings.
There’s an emphasis on providing data transparency where there’s been little in the past, providing investors with in-depth ESG analysis across the entire public and private investable universe.
It also stands to increase accountability — the data doesn’t lie, so there’s no room to hide if companies aren’t delivering on their ESG strategy.
Through these insights, it becomes easier to sort the wheat from the chaff.
For example, according to Sevva’s research, 80% of the world’s largest companies — 1,600 in total — are still not addressing all 17 of the SDGs.
What’s on the horizon?
There’s still a way to go as AI reforms the ever-changing ESG reporting landscape.
But already, the technology’s potential in the space is clear: it stands to standardise and transform how companies report their ESG data, increasing transparency and simplicity for investors along the way.
WorldQuant remains bullish about AI’s future in the ESG space.
“The common consensus is that transparency and ESG integration will become more profound — the ability to operate with reliable data will play a key role in that process.
“AI can become the key factor in helping investors and risk managers analyze ESG data that can be collected in both structured and unstructured formats.
“Not only can AI help extract relevant information from existing data sources, it also offers exciting opportunities to create new ones.”