INSIGHTS News

Dr. Carolina Minio Paluello joins Arabesque AI, Arabesque Group’s technology arm, which is dedicated to developing deep tech solutions for the asset management industry.

Dr. Minio Paluello joins from Schroders to lead the roll-out of the firm’s cloud-based portfolio management service capable of producing and running millions of active, hyper-customised investment strategies at the click of a button.

Powered by a deep learning AI engine and market leading impact data, Arabesque AI’s platform generates active portfolios in minutes, at a fraction of the typical cost, to meet client preferences at scale.

Arabesque AI’s proprietary engine monitors and estimates returns and sustainability across a universe of more than 20,000 stocks to generate alpha while integrating impact outcomes and aligning portfolios with regulatory requirements including SFDR.

London, 26 January 2023 – Arabesque AI has today announced the appointment of Dr Carolina Minio Paluello as its new Chief Executive Officer and to the group’s executive committee. Dr. Minio Paluello will lead the roll-out of the company’s AI-powered portfolio management service. The new platform is the second release from Arabesque, following the launch of ESG Book in 2021, which has become the world’s largest independent ESG data repository.

Dr Minio Paluello joins Arabesque AI from Schroders, where she oversaw product, solutions and quant operations. Prior to this, Dr Minio Paluello led the integration of sustainability into product solutions at Lombard Odier following more than a decade at Goldman Sachs Asset Management, where she led quant strategy across client portfolios.

A growing client demand for thematic and impact-focused strategies[1] coupled with the rapid growth and closer regulatory oversight of the Environmental, Social and Governance (ESG) investment market is requiring a fundamental shift in the way that asset managers generate, manage, and label strategies.

Producing the volume of strategies needed to meet these demands requires significant capital expenditure, headcount and non-financial, technical capability. Few asset managers are equipped to meet these demands,[2] and the shift comes as profit margins across active investment management decline.[3]

A cloud-based, AI-powered service to generate and manage active, hyper-customised portfolios in minutes, Arabesque AI provides asset managers with a low-cost technology service to meet these challenges. Asset managers can integrate the service fully into their existing platforms via an API or construct active model portfolios managed via a daily data delivery.

The platform enables asset managers to generate personalised, active investment strategies at scale. Using deep learning and raw ESG and sustainability data for more than 30,000 companies from strategic partner ESG Book, Arabesque AI automates the complex and costly processes of integrating multiple financial and non-financial dimensions and preferences into portfolios. The engine also ensures portfolios align with core regulatory requirements such as the EU’s Sustainable Finance Disclosure Regulation (SFDR), generating portfolios compliant with SFDR Article 8 and 9 labels as required.

Arabesque AI’s alpha engine estimates returns across a universe of more than 20,000 stocks, assessing billions of data points against multiple dimensions daily. The engine represents an evolution of quant investing, moving from a factor-based approach to a machine learning model to meet today’s multidimensional analysis requirements by assessing more than 250 features.

Integrating market leading ESG and impact data into its platform, Arabesque AI’s service enables asset managers to meet detailed client preferences by generating thematic investment products aligned with impact outcomes from climate pathways to the UN Sustainable Development Goals (SDGs).

Dr. Carolina Minio Paluello, CEO at Arabesque AI, said:

“Arabesque AI is uniquely positioned to service the asset management industry’s need to meet the growing market demand for hyper customised portfolios. Our combination of AI and quality impact data means that asset managers of any size can integrate impact as well as risk and return into their strategies, constructing active portfolios that reflect their clients’ preferences, whether retail, high-net-worth or institutional.”

Georg Kell, Chairman of Arabesque Group, said:

“There is an annual funding gap of more than $3.7 trillion dollars preventing the effective fulfilment of the UN SDGs. By comparison, there is more than $150 trillion of global investment assets under management. Clearly, investors have a significant role to play. Arabesque AI is harnessing sustainability and technology to empower capital markets to drive finance towards solutions that will generate the impact required to meet the SDGs head on.”

Tim Wong has also been announced as Chief Product Officer of Arabesque AI. He joins from Finbourne Technology, where he oversaw product development for investment and portfolio management software. This follows over a decade of experience in product management and strategy consulting at Amazon, Capco, McKinsey and PwC.

Tim Wong, who joins Arabesque AI as chief product officer, said:

“Personalised portfolios demand the integration of multiple new data dimensions, complex regulatory compliance requirements and tech expertise outside of the typical asset manager’s capabilities and resource. Arabesque AI solves these problems by combining market-leading ESG and impact data with deep learning to provide a simple, cloud-based solution that asset managers can use out of the box and integrate into any existing investment workflow.”

Dr. Minio Paluello’s appointment as CEO is pending regulatory approval by the Financial Conduct Authority (FCA).

[1] Four in five asset managers see customisation as a key growth driver. (The Future of Asset Management, Accenture)

[2] One-third of US asset managers reported that they lost or were at risk of losing over 20% of their institutional mandates because of their inadequate ESG capabilities. (A Blueprint for Leading in Sustainable Investing, Boston Consulting Group)

[3] 14% decline in profit margins over the last 3 years. (Global Asset Management 2021: The $100 Trillion Machine, Boston Consulting Group)

INSIGHTS News

AutoCIO, the world’s first AI-driven asset management platform delivering active, customisable investment strategies at scale, has appointed Tim Wong as its first Chief Product Officer (CPO).

Tim will take ownership of the strategy and execution of AutoCIO’s product roadmap, developing and scaling the platform in line with evolving client needs. He will lead the integration of AutoCIO into different investment management systems and WealthTech platforms, through AutoCIO’s new Application Programme Interface (API) product.

The product strategy comes in response to a rapidly increasing demand for AI investing solutions that can deliver customised, alpha-generating investment strategies at a fraction of the normal cost and time. AutoCIO’s API solution will mean the platform can be seamlessly integrated into existing order execution and investment management processes.

The expansion of AutoCIO’s integration across the investment management sector comes at a time when the asset management industry looks for new solutions to boost competitiveness, with fees across the sector declining by 4% in 2021^[1]and margins dropping by 14% in three years^[2]. Tim brings more than a decade of experience in product management and strategy consulting. Most recently, he spent four years at Finbourne Technology, where he oversaw product.

development for investment data management and portfolio management software for the asset management industry. Previously, he was a Senior Product Manager at Amazon Prime, leading on the development, launch, and scaling of Prime benefit programmes.

Tim Wong, CPO at AutoCIO, said:

“Asset management is one of the few industries yet to be meaningfully disrupted by technology. Yet it is an industry that is facing a fast-changing landscape, driven by relentless downward pressure on fees, and growing demand from investors for customised products that align to their values and objectives.

“AutoCIO is well positioned to help investment managers leverage AI to meet these challenges, by enabling cost-efficient product development, alpha generation and delivery of customisable investment strategies at scale. I’m excited to be joining a world-class team, to continue strengthening AutoCIO’s value proposition, and to bring our offering to new audiences across the investment landscape.”

Yasin Rosowsky, CEO of Arabesque, added:

“The demand for customisation will be one of the defining industry trends of the decade, and will require technology solutions that can generate hyper-customised strategies on a different scale to anything we have seen before. In the coming years, AI will play a pivotal role in enhancing or replacing traditional products, tools and approaches that are no longer as relevant as they once were.

“As we look to bring AutoCIO to the forefront of the investment management technology landscape, I am thrilled to welcome Tim to our team. His experience and vision will be key to the adoption of AutoCIO across a greater mix of investment clients, reaching far more investors and volumes of capital.”

About AutoCIO

AutoCIO, a platform that allows financial institutions to generate active investment strategies, has doubled the size of its team since 2019.

Users can build customised funds by selecting their preferences across thousands of variables including risk, geography, industry and sustainability.

This enables users to generate hyper customised funds within hours, and at scale, enabling clients to create millions of unique strategies. For each fund generated, users can also analyse a back-test of its performance and compare this against other strategies and benchmarks.

AutoCIO’s AI engine is designed to analyse patterns and behaviours in financial markets, with a range of machine learning algorithms used to forecast stock performance. The engine processes more than 30 million data points daily, and evaluates the movement of over 25,000 equities.

^[1] Cooper, Brendan. “2021 Fee Analyzer Report: Investment Metrics.” invmetrics.com. Accessed August 11, 2022. https://go2.invmetrics.com/report/2021-fee-analyzer-report.

^{^[2]}Heredia, Lubasha. “Global Asset Management 2021: The $100 Trillion Machine.” BCG Global. BCG Global, July 9, 2021. https://www.bcg.com/publications/2021/global-asset-management-industry-report.

INSIGHTS News

New funding will advance ESG Book’s next-generation technology, enabling clients to meet increasingly complex sustainability requirements.

Energy Impact Partners led the round alongside Meridiam and Allianz X, as ESG Book responds to growing demand for technology enabled ESG data solutions.
The company’s cloud-based platform makes ESG data accessible, consistent, and transparent, enabling financial markets to allocate capital towards more sustainable and higher-impact assets.
Investment and global reach of strategic partners will enable ESG Book to expand services worldwide in $5 billion ESG data market.

23rd June, 2022, London and Frankfurt – ESG Book, a global leader in sustainability data and technology, today announced it has closed $35 million in Series B funding. The new capital will be used to advance ESG Book’s next-generation technology capabilities, enabling clients to meet increasingly complex sustainability requirements, and accelerate the company’s expansion as it responds to growing demand for technology enabled ESG data solutions. The round was led by Energy Impact Partners (EIP), a global investment firm leading the transition to a sustainable future, alongside global sustainability leader Meridiam and Allianz X, the digital investments arm of leading global insurer and asset manager Allianz. During the course of the Series B round, shareholders and Series A investors Commerz Real and BMH sold their minority shares in ESG Book, formerly known as Arabesque S-Ray, at an increased valuation versus their initial investments in 2019.

With the ESG data and services market expected to grow to $5 billion globally by 20251, the Series B investment will be used to fuel adoption of ESG Book’s industry-leading data platform, and further the company’s continued expansion into new products areas.

The company’s cloud-based platform makes ESG data accessible, consistent, and transparent, enabling financial markets to allocate capital towards more sustainable and higher-impact assets. Covering over 25,000 companies globally, ESG Book enables companies to be custodians of their own data, provides framework-neutral sustainability information in real-time, and promotes transparency.

Dr Daniel Klier, CEO of ESG Book, said: “Investors, companies, and all market participants are today demanding better, technology-enabled solutions in order to direct capital towards more sustainable and higher-impact assets. ESG Book is disrupting how sustainability is integrated and measured on a global scale by using next-generation technology that makes ESG data accessible, comparable and transparent. By partnering with three of the world’s leading sustainability conscious investors, EIP, Meridiam, and Allianz X, we are excited about the next chapter of our company’s growth as we scale ESG Book’s platform and services worldwide.”

Nazo Moosa, Managing Partner, Europe, at Energy Impact Partners, said: “We are delighted to welcome ESG Book to our family of companies that empower the transition to net zero and support the principles of sustainability. ESG Book marks the tenth investment by Energy Impact Partners in Europe, and this partnership is driven by a shared vision for radical transparency in sustainability data. We look forward to supporting the tremendous momentum of the company as it builds the world’s leading ESG data platform.”

Thierry Deau, Founder and CEO of Meridiam, said: “ESG Book is a platform with the potential to transform the way ESG data is processed by the financial world. We believe it will substantially increase the quality and availability of ESG information to direct financing flows in accordance with sustainable development goals and the Paris Agreement. As impact investors since inception, Meridiam has been confronted with the lack of data transparency and has developed strong expertise in impact measurement. Through this investment by the Green Impact Growth Fund, we will further contribute to the field by helping ESG Book become the reference player in the sustainability data field.”

Carsten Middendorf, Head of Platforms & Acquisitions at Allianz X, said: “As an investor, we know how important data is for making decisions. Sustainability isn’t just a fad or a phase. It’s our necessary present if we are to have a future. That’s why it’s so important to ensure transparency, quality, and comparability in ESG data. We at Allianz X invest in the future, which is why we’re supporters of ESG Book.”

The state of Hesse invested in ESG Book, formerly known as Arabesque S-Ray, through BM H in 2019. With the successful closure of the Series B round led by new private investment, the state of Hesse has now sold the BM H holdings, fulfilling its role in supporting the company’s early growth.

INSIGHTS News

Ortec Finance’s collaboration with ESG Book will provide clients with a one-stop shop for sustainability analysis.

ESG Book, formerly Arabesque S-Ray, combines cutting-edge technology and research to make sustainability data more widely accessible across financial markets.
Investors will gain access to ESG Book’s suite of metrics and data on corporate emissions, green revenues, and regulatory solutions.
Launching later in 2022, Ortec Finance is developing an on-demand Implied Temperature Rise (ITR) analytics platform for Climate ALIGN, powered by ESG Book’s market-leading climate data. The platform will allow clients to access ITR scores across multiple asset classes including public equities, credit, private markets and sovereign debt.

16 June 2022, London, Rotterdam – ESG Book, a global leader in sustainability data and technology, and Ortec Finance, the leading provider of technology and solutions for risk and return management, today announced a new partnership to deliver next-generation ESG data and insights to investors.

Through the collaboration, Ortec Finance will leverage ESG Book’s suite of climate and sustainability data solutions to provide clients with a one-stop shop for sustainability analysis.

Ortec Finance’s partnership with ESG Book, formerly Arabesque S-Ray, will enable investors to access a wide range of metrics and data on corporate greenhouse gas (GHG) emissions and green revenues, as well as regulatory solutions addressing Sustainable Finance Disclosure Regulation (SFDR), Task Force on Climate-Related Financial Disclosures (TCFD) and EU Taxonomy requirements.

Launching later in 2022, Ortec Finance is developing an on-demand Implied Temperature Score (ITR) analytics platform for Climate ALIGN, which will be powered by ESG Book’s market-leading climate data. The platform will allow clients to access ITR scores across multiple asset classes including public equities, credit, and private markets. ITR scores will be available for individual securities, and at an aggregate level across asset classes and portfolios.

Ton van Welie, CEO of Ortec Finance, said: “We are thrilled about the partnership between ESG Book and Ortec Finance. The financial impact of climate risk, combined with net zero alignment, are increasingly taking centre stage in investment decision-making. By combining ESG Book’s sustainability data and technology with the models and methodologies of Ortec Finance, we are able to provide our clients with the analytics and insights that enable them to manage the increasing complexity of investment decision-making.” 

Dr Daniel Klier, CEO of ESG Book, said: “With a shared vision to empower investment decisions through transparency, we are delighted to be collaborating with Ortec Finance to accelerate client access to comparable, reliable ESG data and insights. With the growing focus on the transition to a net zero economy, investors worldwide are developing more robust approaches to climate scenario analysis, and through this partnership, we are excited to deliver the best solutions in the market”.

INSIGHTS News

This month, climate continues to be the primary focus of mandatory disclosures as the UK and Canada adopt TCFD-aligned reporting requirements. The European Commission and World Federation of Advertisers articulate the dangers of unsubstantiated green claims in product marketing and introduce measures to prevent greenwashing. South Africa, Colombia and Sri Lanka outline taxonomies in line with international standards with an overlay of local environmental and social priorities. India ramps up its ESG compliance standards for top companies. UK’s Financial Conduct Authority evaluates company performance in terms of board diversity as it sets ‘comply or explain’ standards. Standard-setting body ISSB furthers cooperation with representatives from different jurisdictions to improve scalability of its global baseline standards. To learn more about the most recent updates, read on.

Europe

EU Commission adopts technical standards for sustainability-related financial disclosures

The European Commission clarified disclosure rules for financial market participants under the Sustainable Finance Disclosures Regulation (SFDR). The adopted provision will apply from 1 January 2023. In response to emerging interpretations of SFDR guidance, the EC will require participants to provide information in a specified manner. Under the new rule, financial market participants must disclose the negative economic and social impacts of investments which will help determine the sustainability performance of financial products. Data quality improvements and harmonization could be starting points in promoting coherence and preventing greenwashing. Read more

EU Proposed on new Ecodesign Requirements for Sustainable Products

The Proposal for a Regulation establishing Ecodesign requirements for sustainable products (ESPR) was released last week. The recently released ESPR will extend the scope of the Ecodesign Directive to non-energy products except for food and medicine. The regulation will provide a general framework enforcing ecodesign requirements for products sold in the EU market. The Proposal is part of the European Sustainability Initiative (ESI), a package of inter-related monitoring protocols that includes communication on product sustainability, textiles and a proposed consumer rights empowerment directive. Existing ESI directives will be in dialogue with future directives regulating the advertisement of products with green claims. Read more

United Kingdom

UK enforces TCFD-aligned reporting requirements

The UK is set to impose climate-related reporting requirements in line with TCFD recommendations from 6 April 2022. The new law will require 1300 of UK’s largest registered companies and financial institutions to report on climate-related risks and opportunities, a major step towards achieving the government’s goal of becoming the world’s greenest financial system. The UK aims to improve data quality and availability for high impact businesses through climate-related reporting ahead of COP26 and G20 summits. As the UK reinforces its commitment to net zero by 2050, it will endorse due diligence as the key operational principle, encouraging companies to internalize processes of climate-related risk assessment. Read more

FCA to require UK-listed companies to disclose on board diversity

The Financial Conduct Authority (FCA) will require listed companies to disclose on board and executive diversity targets from financial period starting 1 April 2022. The ‘comply or explain’ statement targets require 40% women on the board, at least one woman in a senior board position (C-suite executive or Senior Independent Director) and one board member from a non-White ethnic minority background. FCA’s analysis of company diversity will also extend to key board committees, including audit and remuneration committees. Read more

UK launches taskforce to develop ‘gold standard’ for UK companies’ climate transition plans

HM Treasury launched a taskforce to develop a ‘gold standard’ for UK companies’ climate transition plans. In the UK, as of 2023 large companies and certain financial sector firms will be required to publish a transition plan. Climate transition plans are an important tool to provide insights on how to reach net zero by 2050 by setting intermediate milestones. It is important to develop a credible and reliable framework on how these transition plans should like and the requirements to be met. Read more

Americas

Canada to impose mandatory climate disclosures on banks and insurers

Canada’s budget added a special provision that will require banks and insurers to provide climate disclosures in line with the TCFD framework. Under the new initiative, the Office of the Superintendent of Financial Institutions (OSFI) will hold consultations with multiple stakeholders in the financial system to assess the proposed implementation of climate-related disclosures starting in 2024. The OSFI would require financial institutions to collect emissions data and climate risk information from clients. Additionally, the government will incorporate ESG disclosure requirements for federally regulated pension plans. Read more

Colombia publishes LatAm’s first Green Taxonomy

Colombia leads the way in Latin American sustainable finance by launching its own Green Taxonomy. In essence, the classification system replicates EU’s approach for determining the contribution of projects, activities and assets to key environmental objectives. However, Colombia’s Taxonomy differentiates itself by underscoring the importance of land use in sustainability reporting. The country has taken a huge step towards reinforcing its climate goals by focusing on the regulation of priority sectors, specifically, agriculture, forestry and livestock. 59% of Colombia’s greenhouse gas emissions can be attributed to the agriculture, forestry and livestock sector, therefore it is likely that these sector activities will be subject to additional screening criteria and minimum threshold requirements in the future. Read more

Africa

South Africa launches first Green Finance Taxonomy edition

South Africa’s Treasury released the first edition of its Green Finance Taxonomy with the goal of creating locally adapted rules and sustainability standards for market participants. The Taxonomy is a ‘living document’ that seeks to drive large-scale climate-friendly capital allocation decisions and green investments through increased transparency. The ‘green’ design of South Africa’s recent environmental provision remains embedded in customary contours of global governance as it is modeled after the EU Taxonomy. Defining the social cost of mitigation activities is tough in emerging economies. South Africa may need to address the entanglement of trade and environmental issues. Additionally, the country must contribute analysis of sustainability standards to inform inclusive monitoring protocols and approaches. Read more

Asia

India’s Securities and Exchange Board adopts ESG reporting rules

India’s financial regulatory authority will require the country’s top 1000 companies by market cap size to disclose along with annual stock exchange filings a Business Responsibility and Sustainability Report (BRSR). The new rules on good governance will establish best practices for evaluating enterprise value in line with a company’s overall ESG impact. So far, the Indian government has limited its role of monitoring compliance with an overarching sustainability agenda and businesses have taken initiative to introduce their own sustainability aligned KPIs. The new measure underscores the need for harmonization and institutional oversight of business practices. Read more

Sri Lanka’s Green Taxonomy is under development

Sri Lanka’s central bank is currently developing a green finance taxonomy for the banking sector that will help provide a framework for the assessment of enterprise value and guide green investments. The country plans to reduce its reliance on petroleum products and shift to production and consumption of renewable sources of energy. The transition to low carbon energy sources will not only reduce Sri Lanka’s expenditure on imported fossil fuels but also reduce its greenhouse emissions. By creating parallel public and private incentives to comply with climate standards, Sri Lanka hopes to establish a robust sustainable energy infrastructure. Read more

Global

ISSB establishes working group to enhance compatibility between global baseline and jurisdictional initiatives

Leading standard-setter ISSB has established a working group to create an ongoing dialogue between jurisdictional initiatives on sustainability reporting and ISSB’s exposure drafts. ISSB will solicit feedback from multiple stakeholder groups as this will inform the development of a scalable global baseline. These standards, which will have an initial focus on climate requirements, can be adopted on a voluntary basis by market participants or be embedded in public policy. Read more

World Federation of Advertisers issues guidance on making credible environmental claims

Amid growing concerns about greenwashing the World Federation of Advertisers issued guidance to strengthen self-assessment for products making environmental claims. The guidance requires marketing and communications materials to be accompanied with ‘robust evidence for all claims likely to be regarded as objective and capable of substantiation’. WFA intends to create an overarching set of sustainability-linked marketing principles that allow consumers to make informed decisions when comparing products. Read more

Other News & Resources

The World Benchmarking Alliance has published the methodology for its forthcoming benchmark that will rank 1,000 companies on their nature-related impacts and dependencies. Each company will receive a score based on 25 nature indicators and 18 social factors when the benchmark is released in December.
The International Monetary Fund has created a loan-based Resilience and Sustainability Trust to help countries build resilience to external shocks and ensure sustainable growth. Complementing the IMF’s existing lending toolkit, this will focus on longer-term structural challenges, including climate change and pandemic preparedness. About three-quarters of IMF member states will be eligible.
During the City Week 2022 conference in London, International Sustainability Standards Board chair Emmanuel Faber said the organisation will soon launch a platform for jurisdictions working on climate disclosures with the aim of aligning efforts.
Science Based Targets initiative launches net-zero finance standard development process with Foundations paper. Read more

Consultations

NGFS consultation on its repository of climate data needs and available sources: This public consultation seeks feedback on the directory web interface through a short online questionnaire. The consultation is open until May 6, 2022, COB. Read more
SEC Climate rule: On March 21, 2022, in a landmark proposal, the US Securities and Exchange Commission (“SEC”) proposed rules that would require public companies to disclose extensive climate-related information in their SEC filings. The proposal is open for public comment through at least May 21, 2022. Read more
EC Targeted consultation on the functioning of the ESG ratings market in the European Union and on the consideration of ESG factors in credit ratings: 4 April 2022 – 6 June 2022. Link
ISSB Exposure Drafts: International Sustainability Standards Board has started a public consultation on climate-related financial disclosures. The ISSB seeks feedback on the proposals until 29 July 2022. Read more
EBA launches discussion on the role of environmental risks in the prudential framework: The European Banking Authority (EBA) published a Discussion Paper on the role of environmental risks in the prudential framework for credit institutions and investment firms. The Paper explores whether and how environmental risks are to be incorporated into the Pillar 1 prudential framework. The consultation runs until 2 August 2022. Read more
EFRAG Consultation on the exposure drafts: EFRAG’s Due Process establishes public consultations as a key step of its standard setting activities. EFRAG therefore wishes to announce that it will launch a public consultation on the first set of exposure drafts around the end of April. The consultation deadline will be 8th August 2022. Read more

INSIGHTS News

With a growing influence and reach of non-state actors, there has consistently been an effort to design standards and frameworks aligning the activities of the private sector with sustainability objectives. In the context of trade, the legitimacy of EU’s climate sovereignty will be preserved using a new carbon-leakage mitigation measure. The S.E.C. has sounded off the alarm bells for climate-related financial risk, but progressive rulemaking to this effect is tricky in Washington. A new biodiversity successor to TCFD – the TNFD – brings the topic of biodiversity into focus. Leading standard-setters GRI and IFRS will work together to develop a sustainability reporting ‘baseline’ through an investor-focused lens. These are some of the major ESG regulatory updated featured in our March 2022 update below.

EU imposes carbon tax on imported products

EU countries have reached an agreement on a Carbon Border Adjustment Mechanism (CBAM) to prevent the risk of carbon leakage. The policy will take aim at companies outsourcing carbon emissions abroad, where it may be easier to eschew manufacturing processes oversight. CBAM will be implemented in 2023 to address the offsetting of EU’s GHG emissions reduction efforts and lighten transition risk for companies importing carbon-intensive products to high-value markets. Read more

EU Taxonomy technical criteria: non-climate objectives and environmental transition taxonomy report published

The EU boosts its commitment to accountability criteria with its latest publication of technical recommendations for the disclosure of the remaining four non-climate environmental objectives – marine conservation, pollution prevention, circular economy, biodiversity and ecosystems. The new Platform’s report covers more than 60 economic activities in 12 sectors, including manufacturing, transport, agriculture, fishing, buildings and disaster risk management. The European Commission is expected to draft a new Delegated Act building on the Platform’s recommendations in the autumn. Read more

SEC proposed climate rule

On 23 March 2022, the SEC published a proposed rule that would require public companies to disclose climate change related risks that “are reasonably likely to have a material impact on its business, operating results in financial condition. The rule, once finalized, will require Scope 1 and 2 GHG emissions metrics to be disclosed separately, shown both by disaggregated constituent GHGs and in the aggregate, as well as in absolute and intensity terms. The SEC offers leeway for supply chain emissions, as Scope 3 emissions reporting is subject to materiality. Read more

TNFD releases beta version of framework for nature-related risk management

TNFD released the first version of a framework to demystify the concepts and definitions of nature-related risks and opportunities. It follows an “open innovation” approach by soliciting feedback from market participants on an online platform. The framework’s beta version offers guidance to support internal strategy and risk management processes within corporations and financial institutions, thus illustrating the function of disclosure findings to inform corporate and capital allocation decisions. Read more

GRI and IFRS announce collaboration on global sustainability standards

The Global Reporting Initiative (GRI) and the IFRS Foundation have agreed to jointly develop a global baseline for investor-focused sustainability reporting standards. GRI’s sustainability reporting requirements will complement IFRS’s investor-focused capital markets standards to promote good governance schemes and meet multi-stakeholder needs. Both organizations’ standard-setting boards will work in a consultative capacity in the lead up to ISSB’s draft publication of “game changing” standards for climate reporting published on 31st March 2022 week. Read more

Republic of Korea enacts Carbon Neutrality and Green Growth Act for Climate Change

South Korea enacted the Carbon Neutrality and Green Growth Act for the Climate Change. In furtherance of targets set forth at COP26, Korea will require its government to cut its greenhouse gas emissions by 35% of 2018 levels and achieve carbon neutrality by 2050. The law entered into force on 25th March 2022. Read more

Other News & Resources

BIS Working Paper: Deconstructing ESG scores: In this working paper, BIS proposes sustainability impact assessment by breaking down ESG scores into granular components. In what is called a “targeted” ESG investment strategy, asset managers may exclude firms with the lowest selected ESG category scores and reinvest proceeds in firms with the highest scores having the same regional and sectoral composition. Read more
U.S. Department of Labor takes measures to protect retirement savings from climate-related risks: The U.S. Department of Labor has issued a Request for Information seeking input from the public on agency actions to protect retirement savings from climate-related risks. Read more
Bursa Malaysia doubles down on sustainability reporting: Malaysia’s Stock Exchange has proposed amendments to the “Listing Requirements” in a public consultation paper in order to enhance sustainability reporting practices and climate-related financial disclosures. The consultation paper on the proposed amendments to the Listing Requirements is available here. Interested parties are invited to submit their comments and feedback to Bursa Malaysia by 18 May 2022. Read more
European Supervisory Authorities clarify application of SFDR for investors: EU’s ESAs have issued a revised statement to promote the consistent application of SFDR. The supervisory bodies clarify disclosure expectations under the Taxonomy Regulation and encourage the application of relevant measures under SFDR. Read more
EFRAG issues its Due Process Procedures for Sustainability Reporting Standard Setting: EFRAG announced the publication of the Due Process Procedures for Sustainability Reporting Standard-Setting (the DPP). The provisions contained in the DPP apply to the preparation of draft EU sustainability reporting standards by EFRAG.

INSIGHTS News

ESG Data Convergence Project metrics for the Private Equity market launch on ESG Book

– Launch of ESG Data Convergence Project metrics on ESG Book enables private equity GPs and LPs worldwide to access meaningful, performance-based, comparable sustainability data from private companies.

– Supported by over 100 leading private equity firms representing $8.7 trillion USD in AUM and more than 1,400 private companies, the ESG Data Convergence Project standardises ESG reporting for private markets.

– Through ESG Book, private companies can disclose information against the ESG Data Convergence Project’s reporting template as well as on a range of sustainability frameworks globally.

– Delivered through cloud technology, ESG Book enables companies to be custodians of their data through a secure digital platform, provides framework-neutral ESG information in real-time, and promotes transparency.

ESG Book, the central source for accessible and digital corporate sustainability data, today announced that private companies can now disclose sustainability data on the platform through a new set of metrics designed to standardise ESG reporting for private markets.

The launch of ESG Data Convergence Project metrics on ESG Book enables private equity general partners (GPs) and limited partners (LPs) worldwide to access meaningful, performance-based, comparable sustainability data from private companies.

Supported by over 100 leading private equity firms representing $8.7 trillion USD in AUM and more than 1,400 private companies, the ESG Data Convergence Project was unveiled in September 2021 as a solution to the private market’s historically fragmented approach to collecting and reporting ESG data. Through ESG Book, private companies are able to disclose information against the Project’s reporting template, as well as on a wide range of sustainability frameworks globally.

Delivered through cutting-edge cloud technology, ESG Book makes sustainability data more widely available and comparable for all stakeholders, allows companies to be custodians of their own data through a secure digital platform, provides framework-neutral ESG information in real-time, and promotes transparency. The platform is supported by international organisations including the International Finance Corporation (IFC), and runs according to principles from the UN Global Compact, which encourages companies to adopt sustainable policies.

Dr Daniel Klier, CEO of ESG Book, said: “The lack of a comparable, consistent ESG data collection and reporting framework has long been an issue for the private equity industry in assessing the sustainability progress of portfolio companies. The ESG Data Convergence Project is a vitally important initiative to help address this problem, and through ESG Book, we are now able to offer a market-leading solution that makes it easier for private companies to securely disclose their sustainability data against meaningful performance metrics. In doing so, this will increase transparency across private markets, reduce data gaps, and drive material ESG improvements.”

On ESG Book, private companies can map their data against the Private Equity ESG Data Convergence Project’s key metrics, alongside other frameworks including the Sustainability Accounting Standards Board (SASB), Global Reporting Initiative (GRI), Sustainable Finance Disclosure Regulation (SFDR) and Task Force on Climate-related Financial Disclosures (TCFD). This will accelerate data comparability across companies, including publicly listed corporations, with a suite of analytics and benchmarking tools allowing GPs and LPs, together with portfolio companies, to measure progress on ESG performance.

Today’s announcement comes as capital flows towards ESG strategies across private markets continues to rapidly grow, with an estimated $3.1trillion¹ of sustainable investments – one-third of private capital under management – now committed worldwide.

1) ‘ESG in Alternatives Report 2021’, Preqin

Notes to Editors

ESG Book is the new central source for digital corporate sustainability data, and is supported by a global alliance of leading organisations including the International Finance Corporation (IFC), Global Reporting Initiative, Bridgewater Associates, HSBC, Deutsche Bank, HKEX, Allianz and Swiss Re. ESG Book was developed by Arabesque, a technology company supporting the financial industry in sustainability and artificial intelligence. It counts many of the world’s leading financial organisations among its clients, which collectively manage over $120 trillion in assets.

INSIGHTS News

Arabesque recently created an AI and data engineering centre based in Singapore. The centre is supported under the Financial Sector Technology & Innovation – Artificial Intelligence & Data Analytics (FSTI – AIDA) scheme, which aims to strengthen the AIDA ecosystem in the Singapore financial sector. The FSTI – AIDA scheme is funded by the Financial Sector Development Fund, administered by the Monetary Authority of Singapore. Arabesque team members work in close collaboration with the wider Arabesque team, primarily in London, but also in Tokyo, New Delhi, Frankfurt and Boston.

A key differentiator of the centre is its engineering-first approach. This has a number of benefits; for example: we can quickly experiment and iterate our ideas; our work can be tested at-scale; and we can move our code to production quickly. We continue to maintain our strong engineering partnership with GCP, enabling us to remain at the cutting-edge. See a recent example of our outreach with Google on March 11th here.

Team members based in Singapore support the production of our key deliverable, AutoCIO. AutoCIO is an easy-to-use platform that builds customisable investment strategies. For example, by using AutoCIO, investment strategies can be customised to target certain CO2 emissions or certain gender diversity levels. The platform is utilised by Arabesque’s clients- such as DWS, one of the world’s leading asset managers, and BIMB Investment, a Shariah-ESG investment management company in Malaysia.

Our engineering centre works on specific KPIs as indicated in our press release, and broadly these cover:

Implementing NLP data to our financial Knowledge Graph;
An AI Financial Analyst, creating new approaches for financial modelling and analysis; and
Understanding data bias with application-to-transfer learning

1. Implementing NLP data to our financial Knowledge Graph

Problem: The growth of structured data (like quarterly revenues or sales) and unstructured data (like news or social-media) is problematic if we do not have the appropriate tools to meaningfully organise the data. Such diverse sources of data (and particularly unstructured data) are often rich in interconnectedness despite their apparent heterogeneity. Such interconnectedness is often obscured in traditional database structures, thereby limiting the value and AI-based insights that these datasets may otherwise provide.

In order to address the problem statement above, the project has three key areas:

The Knowledge Graph as a means to organise interconnected data.
The tools to traverse the graph, extracting relevant data and study the correlations of entities in the Knowledge Graph.
The Knowledge Graph being used to train new AI predictive models.

2. An AI Financial Analyst, creating new approaches for financial modelling and analysis

Problem: Financial analysts typically devote a substantial amount of their time pouring over financial statements, industry reports etc. in order to build complex models for the purpose of corporate valuation, or the prediction of company financials. Aside from the substantial cost of human resource, the absence of modern data-driven AI approaches can ultimately impact the accuracy and integrity of the financial analyst’s output.

Our approach implements a general machine learning approach that can enable a more
accurate and holistic approach to the work typically carried out by a financial analyst targeting the following areas:

DCF (discounted cash flow) predictions, including company/project valuation.
The inclusion of ESG data within DCF approaches.
Company financials predictions, e.g. quarterly sales, including fraud detection.
Event analyses, e.g. Merger likelihoods; Post-IPO stock price analyses; Supply chain impact analyses.

3. Understanding data bias with application to transfer learning

Problem: High-quality, labelled datasets are difficult to obtain or produce because of the large amount of time and effort required to label such datasets. Furthermore, these datasets are often subject to various forms of data bias, thereby hindering trust with a machine learning model using such data.

In order to address the problem statement above, this project has three key areas:

1. Data sourcing: To deliver datasets of high quality and quantity suitable for financial machine learning.
2. Data biases: To develop automated tools and systems for capturing and identifying bias in datasets.
3. Transfer learning: To make advances in the area of transfer learning. In particular, applying the knowledge obtained from one market to other markets for applications such as making investment predictions.

The current focus of the centre is a reimaging of our data processing pipelines to maximise our ability to onboard and process our big data sets. Our current job roles reflect this, and we aim to add additional roles soon. We look forward to continuing to expand our team and leading this initiative to provide innovative financial research in the APAC region.

INSIGHTS News

This article was originally published by International Financing Review (Investors seek raw ESG data to power up by Tessa Walsh)

ESG is moving into a new phase focused on delivering on net zero commitments that will reshape the provision and collection of ESG data, according to Daniel Klier, president of ESG data investment research and asset manager Arabesque.

After last year’s UN COP26 meeting, investors are moving away from single indicators, such as ESG scores or ratings, and are looking for forward-looking data and flexible raw data feeds to power their own work on investment decisions, risk management and modelling and to meet growing regulatory requirements.

“If you want to move ESG out of the ethical corner into the core of the investment process, you need to put your data at the core of the investment process,” Klier said.

“Investors want to use ESG data to address the use case that they have, rather than be told their ESG score by a data provider.”

Klier was formerly HSBC’s global head of sustainable finance and joined Arabesque last June. Arabesque provides technology for sustainable finance and offers ESG investment strategies, data and insights for financial decision-making using artificial intelligence technology.

The firm’s asset management arm uses mathematical models to target ESG investments and Klier is also CEO of its S-Ray arm, which provides data and ESG metrics to assess the sustainability performance of companies.

Private markets push

Reported data on large, listed companies are backward looking and often inaccurate, and the push of ESG into private markets where data are harder to acquire is requiring a new approach to fill large data gaps.

Arabesque launched ESG Book in December, which is a central digital hub for corporate sustainable information that makes raw data available for free and charges for any analytics created.

Investors and banks can also invite companies to disclose straight onto ESG Book’s platform to gather necessary data. It has been created with a group of founding partners that includes the IFC, Deutsche Bank and HSBC and lenders can incorporate data disclosure into credit agreements.

“The interesting discussion of the moment is how do you get into private markets and how do you use alternative data sources to turn this into insight,” Klier said.

“People want raw data. There’s so much wealth in unstructured data but people need help to create investment sights that help capital allocation.”

Arabesque has recently announced a partnership that integrates its ESG data products with cloud technology company Snowflake, which will allow clients to import ESG data products into their technology.

This will give access to Arabesque’s full data set in real time, which includes sustainability performance metrics and green revenue data, alignment with Taskforce on Climate-Related Financial Disclosures and Sustainable Finance Disclosure Regulation as well as temperature scores and UN Global Compact scores.

These new data sets are expected to be used to develop new ESG funds that target more specific ESG topics with investment propositions such as climate funds and energy transition funds that will help managers to counter accusations of greenwashing.

INSIGHTS News

2022 has kicked off in earnest with busy schedules and the winter holidays seeming like only a distant memory for many of us. ESG regulators have not made an exception in this regard and started off the year with a range of noteworthy developments and announcements regarding ESG disclosure and transparency rules that will be implemented over the coming year.

EU Taxonomy: will nuclear and natural gas make the cut?

The experts at the EU Platform on Sustainable Finance have published a response to the EU Commission opining that nuclear energy and natural gas “could not be considered sustainable” as per the remit of the Taxonomy and their inclusion could pose “a serious risk … undermining the sustainable Taxonomy framework”. The final shape of the delegated act is still to be determined after a lengthy political process. And the ‘greenness’ of nuclear energy and natural gas is still to be decided. Read more

EBA publishes binding standards on Pillar 3 bank disclosures on ESG risks.

On 24 January, the European Banking Authority published its final draft implementing technical standards (ITS) on Pillar 3 disclosures on ESG risks. The standards put forward comparable disclosures and KPIs, including a green asset ratio (GAR) and a banking book taxonomy alignment ratio (BTAR), as a tool to show how institutions are embedding sustainability considerations in their risk management, business models and strategy and their pathway towards the Paris agreement goals. Once approved by the European Commission, EU banks will have to start making ESG disclosures in 2023, with full phase-in by June 2024. Read more

ESMA Consultation on MIFID II Sustainability Guidelines review

EU securities regulator ESMA has launched a consultation on a requirement for financial firms to collect data regarding clients’ preferences for sustainable investment products and subsequently propose products which meet those preferences. The proposals follow revisions to suitability requirements under the MiFID II regulations. The consultation closes on 27 April 2022. ESMA expects to publish a final report in Q3 2022.  Read more

UK FCA Climate related disclosure regime comes into effect

The rules, which are phased in from January 2022, are closely aligned to the Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations. They require in-scope firms to make annual firm-level disclosures relating to how they take climate-related risks and opportunities into account when managing their investments as well as product-level disclosures. Read more

India set to become the first country to regulate ESG ratings providers

The Indian securities regulator Securities and Exchange Board of India (SEBI) published a set of draft rules on 24 January 2022, according to which providers of ESG ratings and commentary would have to obtain accreditation from SEBI, to be reviewed every two years. The initiative focuses on scrutinizing the processes and policies each data provider follows regarding transparency, methodology and conflict of interest. The deadline to respond to SEBI’s consultation is 10 March. It is likely that other regulators such as the UK’s FCA, ESMA and the European Commission might soon follow suit towards regulating the ESG data market. Read more

US SEC expected to introduce new ESG disclosures in 2022

The US Securities and Exchange Commission (SEC) is expected to propose mandatory ESG-related disclosure rules in early 2022. Even without specific requirements, any ESG-related material impacts should be disclosed under existing SEC rules. Some of the priorities and areas of interest include: disclosure and compliance issues related to investment advisers and fund ESG strategies, greenwashing and proxy voting. Read more

Other news

The Hong Kong Monetary Authority (HKMA) published the results of its pilot climate risk stress test (CRST). Read more
Bursa Malaysia announces the enhanced requirements in the Main and ACE Market Listing Requirements (“the Listing Requirements”), aimed at further strengthening board independence, quality, and diversity.  Read more
International Sustainability Board (ISSB) commences its streamlining of the sustainability disclosure landscape. Read more