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Greenwashing makes ethical investing hard: Here’s how AI can help


Do investors still have to wade through "greenwashing" and vague claims in order to find companies that align with their values?

Greenwashing or green sheen is the deceptive art of spending more time and money on marketing eco-credentials than the actual initiatives themselves, and it has reached pandemic proportions.

Wading through hidden trade-offs, unsubstantiated claims, vagueness or just blatant lies is one of the greatest challenges for investors.

And it is a challenge, simply because ethical investors increasingly care about the impact of the companies in which they are investing.

ESG investing has come a long way

Previously it was a "tick box" exercise and investors would exclude entire industries from their portfolios, steering clear of "sin-dustries" such as tobacco and weapons. Investors would identify possible investments and then look for any reasons not to invest.

The fact that ESG factors are driving investment decisions is nothing new.

But these days, ESG is no longer an afterthought. It is front and centre, and companies that underperform in ESG won't even make it past first base with investors.

Although investors have woken up to the importance of ESG, events like COP26 have further shined the spotlight on the issues. In this brave new world, investors now know that they need to hold companies accountable as our government has been slow to do this on our behalf.

Reporting ESG is (often deliberately) confusing business.

The problem for most investors is that understanding what companies are doing to improve their own footprint is time consuming. There is bewilderment and division in opinions on how to evaluate ESG policies and even what constitutes a sustainable investment.

Governments, especially not in Australia, have not standardised the methodologies that businesses use to set targets, so reporting is equally murky.

Enter artificial intelligence as the investors' short-cut.

The inconsistency in reporting ESG and multiple data sources is paving the way for AI investment solutions, so that investors don't need to wade through greenwash and subjectively evaluate opportunities against the PRI's principles of responsible investment.

For a trading platform like Jaaims, AI is essential because the markets move quickly, and investors simply don't have time to research over a period of weeks.

We now can fully automate trading based on ESG criteria which meets the demands of traders who care about the impact of their investments, but need to be able to trade quickly to take advantage of the speed of the markets.

A large and complex investment universe

Investors are not just looking at companies that solve ESG problems through technology, they are also seeing opportunities to invest in companies across all sectors, including the traditional sin sectors which may be pivoting their business strategies.

Businesses in these industries are eager to be seen to adopt net zero targets and identify the pathway for a more ESG-friendly business.

For those who are eager to invest directly into green technology, there is also a whole investment ecosystem around innovations, for example electric vehicles (EVs). From an investor perspective this is an exciting area with more government investment in infrastructure set to accelerate the take up of EVs.

To gain exposure to green trends is not just a matter of piling into TESLA stocks. Investors are also looking at what the large incumbent car manufacturers are doing to retain market share, as well as supporting infrastructure like charging stations and batteries.

The US is where investors are getting direct exposure to EV stocks, whereas in Australia exposure is more indirect through mining companies, for example, that are producing battery components.

The investment universe is vast and investors are able to gain access to those companies at the tap of the app.

On our own app, we are currently seeing well credentialled ESG buying opportunities with Altium Ltd (ALU), Appen Ltd (APX) and Charter Hall Group (CHC), based on an AI algorithm that uses over 250 news feeds, over 10 million pieces daily that indicates these companies are vigilant about their ESG requirements and appear undervalued compared to their peers.

ESG factors are a key part of the operations of every single company on our suffering planet, and pressure on these companies to improve will not abate.

But the current situation is a little like the wild west and companies can cherry pick their metrics to paint a very green picture.

Without common sustainability reporting standards and an opaque narrative around ESG, investors are using AI to step into the breach to help them make decisions that are in line with their values.

Tui Eruera is the founder of Jaaims, an automated online trading application that analyses, predicts and makes calculated trades on your behalf on shares you choose to trade.

Disclaimer: The views and opinions expressed in this article (which may be subject to change without notice) are solely those of the author and do not necessarily reflect those of Finder and its employees. The information contained in this article is not intended to be and does not constitute financial advice, investment advice, trading advice or any other advice or recommendation of any sort. Neither the author nor Finder has taken into account your personal circumstances. You should seek professional advice before making any further decisions based on this information.

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