HSBC pioneers AI-backed ESG Index for sustainable investment boost


HSBC, in partnership with Arabesque AI, has announced the launch of a pioneering ESG Index backed by artificial intelligence (AI).

This innovative index aims to aid in the measurement of a company’s progress in ESG (Environmental, Social, and Governance) parameters and predict potential positive financial performance.

The ESG Index, fuelled by data from ESG Book, has been carefully designed to monitor the performance of over 1000 liquid stocks from global companies. These are the firms expected to gain financially from improvements in their ESG risk metrics.

HSBC, Arabesque AI, ESG Index, artificial intelligence, sustainable investment, ESG Book, ESG 2023, FinTech 2023Arabesque AI co-founder and VP of engineering Yasin Rosowsky revealed that their back-tested data showed increased annual returns when investments were biased towards stocks showing ESG momentum, as compared to S&P global benchmarks over the same period. He said, “In other words, there is a positive correlation between companies transitioning to more sustainable business practices and their returns.”

The ESG score for each index constituent is calculated by ESG Book using natural language processing to mine pertinent public sources daily. These sources include ESG-related news and data from non-governmental organisations (NGOs). Arabesque AI computes the ‘ESG momentum score’ every six months to assess whether each constituent has enhanced their ESG credentials.

Patrick Kondarjian, global head of sustainability for markets & securities services at HSBC, explained the unique value proposition of the new index, “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.”

This promising development could mark a significant leap forward in sustainable investing, offering a dynamic, AI-powered approach to ESG evaluation and financial performance prediction.

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