German index provider Solactive and San Francisco-based artificial intelligence (AI) company Truvalue Labs have teamed up to launch a suite of environmental, social, and governance (ESG) indices that are driven by AI.
The index methodology utilizes AI and machine learning capabilities from Truvalue Labs to provide unconventional analysis of a firm’s ESG performance.
The indices will be constructed from the Solactive Global Benchmark Series which covers around 2,000 equity indices across
developed and emerging markets.
From this universe, Solactive selects companies with high ‘Insight Scores’, a proprietary ESG rating calculated by Truvalue Labs.
In obtaining the Insight Scores, Truvalue Labs utilizes AI and machine learning to parse unstructured data from more than 100,000 sources.
According to Truvalue Labs, this process results in more of an independent perspective on a firm’s ESG performance rather than relying on company disclosures which may be subject to manipulation.
“We are looking for innovative ways to uncover insights from ESG data,” said Steffen Scheuble, CEO of Solactive. “Quality and timeliness in ESG data are high priorities for investors. As a company that puts substantial research into machine learning and natural language processing, we are very confident that we have found an ally in Truvalue Labs which also has artificial intelligence as its core competency.”
Hendrik Bartel, CEO and Co-founder of Truvalue Labs, added, “As more investors increasingly integrate ESG into their investment processes, it is our mission to provide signals that are timely and sourced from transparent data. With Solactive, we are pleased to find a partner that shares our values and vision with respect to AI and ESG. We look forward to working closely to bring new innovative indices to market.”
Solactive notes that the index design allows clients to individually form regional or domestic index combinations, providing full flexibility in the creation of custom equity strategies in index format.
ESG and AI-driven investment methodologies have been two of the hottest areas within the European fund universe lately, and the indices are thus likely to catch the attention of ETF product developers.
Solactive already offers an extensive ESG line-up of indices, having launched an ESG index family in partnership with Legal & General Investment Management (LGIM) in June 2018. This suite consists of equity indices providing exposure to each region within the developed markets equity universe, including Asia-Pacific, Europe, Japan, North America, and the UK, as well as fixed income indices provide coverage of the investment grade corporate bond market denominated in euros, US dollars or pound sterling.