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Alternative Market Briefing

Using data science to measure ESG raises alpha

Friday, February 15, 2019

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Peter Kellner
B. G., Opalesque Geneva:

"ESG metrics today are terrible," Peter Kellner, social entrepreneur, activist and ESG investor, tells Matthias Knab on Opalesque TV. This is because they are self-reported, he continues, they are non-periodic, and their time series are not well weighted. "So the metric providers today don't provide particularly good information. If you're going to claim that you can use ESG metric to identify alpha in your investments, that's not a credible claim… unless you can use data science to identify ESG metric." Which is what he did.

ESG stands for environmental, social and governance, three central factors in measuring the sustainability and ethical impact of an investment.

When he developed a taste for data science a few years ago, Kellner looked into whether it could be used to identify "material ESG metric" that could be applied to all asset classes to generate alpha and minimise risks. He especially looked into public investments in sustainability, where the biggest potentials lie.

Material metrics are non-financial and sometimes financial metrics that affect financial performance, he explains. So if a company organises a 10km run for their employees, they may contribute to th......................

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