ESG and Index investing are on the rise. In 2021, the number of ESG indexes—benchmarks with Environmental, Social, and Governance factors—grew by 43%, following a 40% increase the previous year, according to BMO Global Asset Management. In comparison, indexes tracking other market criteria saw just a 5% increase. This growth reflects the rising interest in sustainable funds. But why should investors care about ESG indexing?
How Do Indexes Fit Into ESG Investing?
The roots of ESG investing can be traced back to Socially Responsible Investing (SRI), which gained traction in the 1950s as investors sought to distance themselves from companies involved in controversial activities such as weapons manufacturing and tobacco production.
Over time, as global concerns like climate change, human rights violations, and corporate governance scandals became more prominent concerns, investors shifted towards ESG integration, recognising that environmental, social, and governance factors carry financial implications across all sectors. Rather than excluding companies based on their business activities, ESG integration focuses on assessing how well companies manage their ESG risks while seizing opportunities.
Despite the rise of ESG investment products, which provide investors with a means to coordinate their investment decisions with their principles and sustainability objectives, ambiguity remains, particularly regarding ESG ratings that vary among providers. This variability raises questions about the accuracy of these ratings in assessing both ESG opportunity and risk, leaving investors to grapple with how best to evaluate companies accordingly.
Indexes are a promising solution to this ambiguity by prioritising ESG risk management. Companies demonstrating superior ESG risk management practices are more likely to secure inclusion in ESG indexes. By doing so, investors can potentially mitigate their exposure to ESG-related risks while aligning their investment strategies with broader sustainability goals.
GaiaLens & AlphaBlock Technologies Partnership to develop new ESG and Climate Indexes
GaiaLens is excited to announce our recent partnership with AlphaBlock Technologies to develop advanced ESG and Climate Indexes, leveraging our combined expertise in technology and sustainable investing. This collaboration signifies a significant milestone in the financial industry as we unite to address the urgent need for improved performance in existing ESG-based funds.
GaiaLens’ AI-powered sustainability platform is already transforming decision-making processes for institutional investors and financial services firms. With a dashboard providing real-time access to scientifically backed ESG data on over 20,000 companies, we are reshaping the landscape of sustainable investing. Our comprehensive suite of tools, including portfolio reporting, investment screening, and in-depth research capabilities, streamlines sustainable investing through cutting-edge technology.
AlphaBlock Technologies, meanwhile, is a Toronto-based company dedicated to revolutionising the investment management model by developing machines that outperform the market. Their “Universal-indexing” method, validated by NASDAQ and honoured with an MIT Fintech award, showcases their commitment to innovation.
This collaboration goes beyond technological advancement; it embodies a shared vision of merging indexing innovation with environmental stewardship, social inclusion, and robust governance practices. Together, we are driving positive change and advancing sustainable investing principles.