Author: Georg Kell
While Covid may have taught us that uncertainty and disruption are here to stay, predicting the future is not yet a fruitless exercise. Especially in the finance sector, it remains a popular, and necessary pursuit. That said, I’m not going to hazard a guess on where Bitcoin will be in ten years’ time. Instead, I have far greater confidence in predicting that after the 2020s, artificial intelligence (AI) will have dramatically changed our understanding of sustainable investment. Both in terms of what ‘sustainable’ really means, and how investors can use AI to generate competitive advantage.
AI, as humanity has discovered in sectors from healthcare to gaming, can understand and process information in a way not possible for humans. Its ability to produce actionable insights from seemingly impenetrable data will continue to drive positive change across a range of human activity. In investment and, specifically, sustainable investment, this is particularly promising.
The current ‘state of play’ with sustainable investment is unclear. Everyone is talking about it, and everybody recognises that we need to drive capital into activity that will not have a harmful impact on our environment. But how to judge this? Environmental, social and governance – or ‘ESG’ – considerations to assess are manifold. And there is a rapidly growing pool of different ESG reporting frameworks for companies, just to make things more complex. Watchdogs may list recommendations to inject more transparency into how ESG data products and ratings are compiled. But even as more accessible data becomes available, it will not alone be enough to drive the step change the industry needs.
As an investor today, you must process and interpret this huge volume of diffuse data to get anywhere near an investment strategy that could be considered sustainable. Labelling a product as ‘green’ won’t cut it anymore: asset managers must provide multiple products to cater to increasingly diverse investor values.
How does AI play its part, then? As the finance community is starting to realise, the power of artificial intelligence can provide asset managers with the analytical power to generate multiple, truly sustainable and values-aligned investment strategies at scale. Up to now, most investment houses have lost competitive ability versus the biggest players who have the firepower to build the large teams necessary to crunch the information in front of them and build reliable investment strategies.
Over this decade, I believe we will see this change with a democratisation of sustainable investing, with the help of AI. From data collection, integration, model testing, training to risk profiling, delivering a single strategy would currently take a human approximately six months. AI will make this a matter of minutes, even seconds. Investment professionals of all levels will be able to build customised active strategies that can be tailored to individual investor beliefs, and can be relied upon with confidence. AI will enable even the smallest investment houses to create the volume and variety of funds that is currently the preserve of the only world’s biggest asset managers.
Artificial intelligence can help create millions of unique and sustainable investment funds. By the end of the decade, I would not be surprised that everyone is generating these in moments at the click of a button or even through a smart device. Consequently, we’ll be able to open up the bottleneck currently preventing trillions of dollars of investor capital being diverted into sustainable businesses, and bring us closer to fulfilling the Paris Accord goal of limiting global warming to 2C by 2050.
The asset management industry is increasingly looking to leverage technology to improve the customer experience. And over this decade, the power of AI to analyse and understand non-financial data will be key in enabling asset managers to deliver the solutions which the market is demanding.
Georg Kell is chairman of the asset-manager Arabesque and the founder of the UN Global Compact.