The International Finance Corporation (IFC) and asset management giant Amundi have published a paper exploring the use of artificial intelligence (AI) to improve emerging markets investment.
Specifically, the paper explores how the technology can help investors and asset managers collect and analyze environmental, social and governance (ESG) data in different regions and economies.
According to the IFC and Amundi, AI solutions can increase the speed and scope of access to relevant ESG information as well as reduce the costs involved in gathering such data. The technology can also support research and policy development.
While assets held in ESG-themed investment funds globally have tripled since 2015, much of this growth has been limited to the developed world, the report showed. Investors looking to allocate to emerging markets have been hindered by the lack of ESG data in these regions.
One specific branch of AI technology was highlighted in the report: natural language processing (NLP). This deals with computing capabilities that can understand the way humans use language. It can be used to identify, extract, and analyze data and inferences from unstructured text data such as annual reports, corporate sustainability reports, speeches, and news articles.
Caroline Le Meaux, Amundi’s global head of ESG research, engagement and voting, said: “Unstructured data gives us access to new types of information, but it also provides color and perspective to data already in hand. It could help issuers make sure the data available is more efficiently communicated and therefore could help combat ESG reporting fatigue.
“It is furthermore a way to limit biases due to discrepancies in the means dedicated to corporate social responsibility communication. NLP is therefore particularly useful in the emerging market space.”
Currently, investors looking to integrate ESG considerations face several challenges, including the wide range of reporting standards and the often conflicting definitions of sustainable investments.