HSBC has introduced a groundbreaking global Index that leverages artificial intelligence to evaluate a company's ESG credentials and potential for enhanced financial performance.

Developed in collaboration with Arabesque AI and fueled by data from ESG Book, the Index is designed to monitor the performance of over 1,000 liquid stocks of international firms that are anticipated to reap financial benefits from ESG risk enhancements.

Yasin Rosowsky, co-founder and VP of engineering at Arabesque AI highlights the back-tested data indicating that directing investments towards stocks with ESG momentum generated annual excess returns compared to S&P global benchmarks. This finding underscores a positive correlation between companies transitioning towards sustainable business practices and their financial returns.

To determine the ESG score for each constituent of the Index, ESG Book employs natural language processing to mine pertinent public sources on a daily basis, including ESG-related news and NGO data. Arabesque AI then calculates the "ESG momentum score" every six months, assessing whether each constituent has improved their ESG credentials. Investors will have the opportunity to invest in various products that track the Index and allocate capital toward "ESG improvers."

Patrick Kondarjian, HSBC's global head of sustainability for markets & securities services, explains that the HSBC ESG Risk Improvers Index allows investors to gain exposure to stocks demonstrating ESG momentum, which serves as a valuable financial indicator of future performance. This approach stands in contrast to traditional ESG investment strategies that solely focus on high ESG ratings without considering recent improvements or deteriorations in a stock's ESG credentials.

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Source: Finextra