Beyond finance: AI’s role in sustainable investing

Picture a world in which AI unlocks a sustainability revolution right in time for the massive upcoming wealth transfer. That’s the world you’re living in now. Millennials and Gen Z are sustainability-focused and future-forward. They are keen on leveraging data to make informed, impactful decisions. They expect their money to work for them and the surrounding world. The implications of AI in finance are vast. Notably, AI allows investors to take an approach that serves their wider interests, such as sustainability.

AI models can navigate complex data sets and optimize for the most ESG-friendly investment options. Experts see the transformative power of AI in this space. Leveraging AI’s capabilities can lead to huge strides in ESG performance, and portfolios can be managed to effectively align with broader sustainability objectives. Investors understand the promise of artificial intelligence in sustainable investing, allowing them to reach ESG-focused clients who will make decisions based on their value for environmental impact and sustainability.

The ESG Gap: Demand vs. Supply

The Morgan Stanley Institute for Sustainability Investing found that 88% of investors deemed ESG reporting important in choosing an asset manager. Yet, only 39% of managers offered such services. In terms of corporations, only 35% disclose information about their greenhouse gas emissions, which has become an important metric in the ESG space. This presents a huge opportunity for advisors who are willing to supply millennials and Gen Z with environmentally friendly finance advice that serves their individual needs.

Advisors find themselves in a scenario where their ESG literacy and knowledge are demanded. AI can help to evaluate companies already stamped with ESG approval or those that report lower greenhouse gas emissions. Machine learning models can identify this information and account for it in the types of investments that are selected. Additionally, machine learning models can identify information based on the news and numbers that companies publish, detecting behaviors that indicate ESG alignment. Models can get to the granular details using information about company location, revenue, products, and services. With this, they will get a more holistic view of where companies play within the ESG space. AI allows for predictive analyses that provide multidimensional visibility on a given company, or set of companies, empowering investors to examine the impact of those companies.

Going Beyond Balance Sheets

Sustainable investing is not limited to a balance sheet because it requires a broader, more in-depth view of how a company runs. It is a peculiar time during which companies have environmental initiatives but aren’t necessarily labeled as “ESG.” Then there are other companies labeled as “ESG” that investors prefer not to invest in because they sense disingenuousness on the company’s behalf. The point is that investors, using AI, can become experts at determining which companies align with their customers’ core values—and experts agree.

AI can process more information at a far more rapid pace, which increases the depth and breadth of available information about a company’s sustainability efforts. For example, AI could pull relevant news articles and reports about company behaviors or updates. These insights cross reference a company’s balance sheet and illuminate brands that are truly, measurably, and meaningfully value driven.

For these younger generations of investors, it’s about more than the balance sheet. Yes, young investors will rely on advisors for their financial expertise, but this will be judged by a critical, culturally conscious eye. Sustainability-minded investors will expect their advisors to have insights beyond the numbers.

AI: The Key to Transparency

Analyzing vast, disparate datasets is something that everyday advisors can do thanks to artificial intelligence. From social media accounts to GPS satellite imaging to identify deforestation, artificial intelligence is the key to unlocking transparency. Investors are increasingly empowered to put information to use. Advisors can be sure that the investments that they recommend for their customers are specifically tailored to the customers’ value systems. Whether it has to do with greenhouse gas emissions, deforestation, toxic waste spillage, or the company’s investment in unsustainable practices, advisors can take a closer look and recommend portfolio options that help customers sleep at night.

Millennials and Gen Z are focused on making decisions that positively impact the world around them. The marriage of artificial intelligence and sustainability promises a future in which investors make informed decisions based on company behaviors. Millennials and Gen Z believe that money should work not only for their personal wealth and growth but for the future. For example,
63% of Gen Z and 59% of millennials
prefer to spend money on life experiences, such as travel and concerts. Advisors must use this information to understand their clients and guide them effectively. When equipped with sustainability information and industry understanding, advisors can build trust with their clients by showing that they understand their values.

With AI, advisors can take a closer look at how companies employ resources and expend energy. Advisors are empowered to create customized portfolios that are true to people’s values. With only about a third of advisors currently offering sustainability-forward services, there’s substantial green business to be won with AI.

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