HSBC has announced the introduction of the HSBC ESG Risk Improvers Index, which is designed to monitor the performance of companies that are expected to benefit financially from improvements in environmental, social, and governance (ESG) risk. In collaboration with Arabesque AI, a financial technology company focused on ESG, the index will utilize data from Arabesque AI’s ESG Book, an ESG data and analytics platform.
Patrick Kondarjian, the Global Head of Sustainability for Markets & Securities Services at HSBC, explained that while traditional ESG investment strategies typically target companies with high ESG ratings, they often overlook whether a company’s ESG credentials have recently improved or worsened. The new index, however, will enable investors to gain exposure to stocks that demonstrate ESG momentum, which is considered a valuable financial indicator for future performance.
The index will track the performance of more than 1,000 highly liquid stocks of global companies. ESG Book, powered by artificial intelligence in the form of natural language processing, will calculate an ESG risk score by analyzing daily data from public sources such as ESG-related news and NGO information. Arabesque AI will provide an “ESG momentum score” every six months for each constituent of the index, determining if there have been changes in their ESG credentials. Investors will have access to various investment products to allocate capital toward companies that are improving their ESG performance.
Yasin Rosowsky, Co-Founder and VP of Engineering, Arabesque AI, said:
“Based on our back-tested data, tilting investments towards stocks exhibiting ESG momentum showed excess returns per annum versus S&P global benchmarks during the same period. In other words, there is a positive correlation between companies transitioning to more sustainable business practices and their returns.”