Investing with a conscience just got a whole lot easier: AI has entered the scene. As it is, ESG (Environmental, Social and Governance) investing grew to $30 trillion in 2018, and looks to reach a staggering $50 trillion over the next two decades. For investors who want to invest with a conscience, it might not require poring over financial indicators and fund fact sheets for hours. AI has already made a substantial difference in our daily lives, so the transition to investing should be fairly simple.
Data Mining Is a Start
One of the fastest ways to have as many options as possible in terms of ESG investment opportunities is by separating them from organizations that don’t necessarily meet the targets. This can be a tedious process, and while there are listings available, there is still much room for error. Data mining is an important component of using AI to select investments. It’s not enough simply to know which companies make the grade. Investors will also need to know whether the funds are performing and whether it’s worth their while investing. This is where AI plays a big role, as it will need to take the relevant information from unstructured data. Investors can set the filters or parameters to what they prefer, and the AI can do the rest.
Setting Indicators for Specific Industries
“Voting with your dollar” is the mantra of those who are socially and environmentally conscious. While this largely refers to purchasing power, it also trickles through to investments. An investor who wants to see ethical changes in the fashion industry, for instance, can choose an algorithm that specifically targets textiles and other fashion-related industries. It can also be programmed to find investment opportunities that exclude certain industries, such as those that the investor may not deem socially responsible.
Industries that tend to fall into these categories include guns and ammunition, gambling, liquor and tobacco. For an investor to narrow down the industries that they’re comfortable with supporting, they would need to know where they stand on certain issues and events. The investment categories can also be grouped together with unique algorithm tags, such as black-owned businesses or those that support certain civil rights movements, which allow investors to support causes while still earning a return.
Bridging the Gap
While AI is changing the way we invest, fund managers and portfolio specialists will still need to oversee the process. This is because AI is not yet at that level where we can give it free rein to invest in ESG companies. This is because an algorithm might say no to a manufacturer based on their product, but the same product might be intended for lifetime use, and can easily be incorporated in other areas of the consumer’s home once it’s intended purpose is finished or no longer viable. A portfolio specialist will be able to ask the questions the AI wouldn’t know how to.
Investing is one way we can change the world to incorporate better environment, social and governance policies. While we can’t rely on AI to do all the work for us, it’s already heading in the right direction.
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