Ethical investing has taken many names and focused on many different issues over the years but is by no means a new phenomenon. According to Bloomberg the AUM in Socially Responsible Investing (SRI), ESG investing* and Impact Investing reached an all-time high in 2016 of USD 223 billion. Yet the tools used by managers to ethically screen potential investments and monitor portfolios are often outdated and error prone. This creates a mismatch when this maturity is paired with the high expectations of a new generation of highly data and technology literate investors.
This issue has reared its head several times in recent years within the press with several well-known and ultimately avoidable cases of ethical investing mishaps. One well known example in 2014 involved the Church of England which indirectly invested into Wonga – a company which conflicted with the Church of England’s ethical investment principles.
The exposure was minimal, less than 0.01% of the market value of Wonga at the time, yet would have cost between £3-9m to remove from the portfolio – a costly oversight. The problem arose due to an investment made into a series of Venture Capital funds which in turn invested into many companies and potentially other funds ultimately with exposure to Wonga.
There are many other similar examples where investors have been surprised when information on indirect exposures has become public knowledge. These range from pension fund investor Calstrs’ divestment of exposure to weapons manufacturing to indirect exposures of funds to oil and tobacco companies. Risks associated with indirect exposure to sanction countries, companies and individuals has also been a hot topic in recent months as the number of wealth managers indirectly linked to the Panama Papers has significantly increased. The fact that much of this work has been carried out by journalists and charities with limited data and technology budgets has further lead ethical investors to question why only limited screening and reporting is typically available on their investments.
Neural Alpha platform
Neural Alpha build solutions for Socially Responsible Investment Managers that require an intimate understanding of all ethical aspects of their portfolios and watchlists. We enable investment managers to rapidly obtain answers to the above questions and automatically monitor portfolios for both direct and indirect ethical issues that may require attention. We use a number of cutting edge technologies to enable deep screening and monitoring of adverse news and also the identification of red flag links between companies, people, products and geographical locations amongst other data types. Neural Alpha integrate a wide range of publicly available and private data sources including directorships, legal structures, business activities and regulatory filings amongst others. Contact us for a demonstration of how your ethical research process can benefit from Neural Alpha.
*Environment, Social and Governance focused investing
June 01, 2016