Universal-Investment Explores AI to Develop ESG Services

Universal-Investment, the Luxembourg and Frankfurt-based administrator is experimenting with the use of artificial intelligence (AI) to extract valuable insights and sentiment from online sources to build client profiles and develop dedicated alternative data services.

In the initial stages of its exploration, the firm is using machine learning (ML) and in particular, natural language processing (NLP) to scrape the web and for gathering data associated with the environment, social or governance (ESG) factors from sources such as social media platforms, blogs, news outlets and non-governmental websites.

“A lot of the information we are talking about in terms of ESG does not exist in data providers, it exists in the opinion of people, such as the opinion of a company, a stock share, etc.,” explains Daniel Andemeskel, head of innovation at Universal-Investment. “That is where web-scraping tools and sentiment analysis is important to better understand and get insights about companies from non-traditional information sources.”

The project would involve applying artificial intelligence to its entire value chain: distribution, investments, and operations. On the distribution side it will involve extracting insights and assessing new sales channels, while investments will involve developing new AI capabilities to process the alt data. Meanwhile, operations will include automating processes, optimizing costs and improving efficiency.

Currently, Universal-Investment is looking at several collaborations with fintech providers to help extract useful ESG insights and carry out a sentiment analysis of online activity and behavior using advanced AI capabilities. The technology would also be used to construct an enhanced understanding of the beliefs and interests of potential clients across largely untapped markets such as millennials. This, in turn, helps the firm to build simple, customized and accessible investment services for potential investors or to offer these services to other asset managers.

Some of the services may include predictive analytics, fund recommendations, gamification features and new distribution channels such as enabling access to investment products through links on social media platforms or relevant websites. Gamification, in this case, may include the way products are displayed and the engagement with the client base. Some examples involve using compelling graphics, and imagery of ESG events such as climate change rather than just text. That will offer simpler access to investments through links and avoids the need for long-winded prospectuses.

Andemeskel explains that the investment firm aims to make investing more attractive to a wider community of retail and institutional investors. Particularly as climate change, gender equality, geopolitical affairs, and other ESG related issues become more important to the success of a firm’s stock price, Universal-Investment looks to leverage this movement and simplify the investment process by presenting potential clients with investment products that matter to them.

“Investment products are primarily driven by performance targets and this is something that will change,” says Andemeskel. “Performance is no longer the only target. People want to have a stable income, but also want to also invest in things they believe in.”

Andemeskel explains that advanced AI capabilities are the reason why tech giants such as Netflix, Amazon, and Google have proven hugely successful in understanding their customer base. Another aspect of the technology is its ability to identify insights from huge sums of online and unstructured data to create sophisticated analytics.

“The biggest power of artificial intelligence is to have this compute power to assess the information and curate it,” he adds. “Instead of having thousands of people that could evaluate a company differently you need to have stable evaluating procedures and algorithms—that is where machine learning, artificial intelligence, and deep learning will be important.”

The ESG Movement

Although standards and data availability remain some of the biggest roadblocks to the adoption of ESG data and investments, in recent months the European Commission has stepped up its efforts to address these issues. On June 18 the lawmaker published the technical report on a taxonomy on sustainable investments, requiring firms to use the taxonomy, report the proportion of sustainable factors in investments and discuss the methodologies in which they are implemented.  Although the current taxonomy is not legally binding, it sets out the basis for future legislation.

As it stands firms are having to take ESG investment seriously. According to members of the Commissions Technical Expert Group (TEG), they have to begin considering how to adopt the new taxonomy and build out new systems to incorporate ESG ratings. Speaking during a Q&A session held by the TEG on June 24, Brenda Kramer a senior advisor focused on responsible investments at Dutch asset manager PGGM and a member of TEG, said that there will be some flexibility to enable firms to adapt to the new guidelines but stressed that there is little time to prepare.

“Yes, on the one hand, it will take time, but we don’t have much more time,” Kramer said.