The digital age gave professional investors near-instantaneous access to a vast trove of data, but organizational silos have sometimes prevented subsequent insights from spreading widely. That’s changing, however, as new digital platforms make it easier for money managers to share real-time information with colleagues across asset classes and strategies.
Better, faster information-sharing has three major potential benefits for clients:
- It creates a “hive mind.” Each portfolio manager (PM) and analyst calls on different knowledge and experience when assessing new information, which can lead to more insights—or at least inspire provocative questions.
- It used to be that only clients in a particular strategy would benefit from the proprietary information or insights of any given PM or analyst. When information is widely shared, however, clients in a broader span of investment strategies stand to benefit.
- Digitalizing information sets the stage for future innovation, including the application of machine-learning technologies.
It’s important for asset managers to prioritize sharing the information that stands to benefit the largest number of investors. Corporate environmental, social and governance (ESG) practices fit the bill, as they are critical to both long-term and short-term performance in any strategy that invests in private sector stocks or bonds.
Companies that treat workers and customers poorly, neglect their impact on the environment and fail to properly oversee their own operations may be more at risk from scandals that destroy their brand’s reputation or cripple operations. Yet, firms don’t have to provide investors with a detailed, regular accounting of, say, their carbon emissions in the same way they must report quarterly earnings results. A forum for sharing both proprietary insights and aggregating third-party views on ESG can help fill the information gap.
ESIGHT: Adapting the Best of Web 2.0
Filling everyday information gaps have made review websites like Yelp ubiquitous. Finding a restaurant that has great service and great sushi in an unfamiliar city used to require a lot of spade work, but now requires only a quick scroll and a few clicks.
Our equities team has applied the same principles, along with some of the discussion-promoting features of Facebook, to create ESIGHT. ESIGHT is a one-stop online shop where all AB investment teams can access and add proprietary information about corporate ESG practices.
The platform has three main functions, starting with aggregating information. On their home screens, investment team members see reverse chronological posts of information and insights from our equities and fixed-income analysts, as well as separate feeds for recent ESG ratings and reports from third-party providers MSCI and Sustainalytics.
The feeds would be familiar to Facebook, Twitter or Instagram users—investment professionals can even “like” or comment on other posts. Teams can also filter by company, taking in all the available information on a single company at a glance.
Second, ESIGHT hosts the equities team’s standard framework on evaluating ESG practices and translating those practices into action. For example, we provide a comprehensive list of questions to consider when assessing a company’s practices and a template for the analyst to record their ESG perspective on the company.
Finally, the tool features an engagement tracker that allows our teams to record the focus and outcome of their discussions with corporate executives and outside groups—information outside investors can’t get anywhere else.
Why Third Parties Aren’t Enough
While third-party reports provide a helpful starting point for further analysis and an independent perspective, they often require additional context.
Third-party reports may not reflect, for example, that a company working to improve its questionable ESG performance may be more valuable than one resting on its laurels. Third-party organizations don’t always update ratings in a timely way after a significant ESG event either, making them less useful during a crisis. Finally, third-party data are widely used by many firms and don’t in themselves offer a competitive advantage.
The real-time update posts from our own fixed-income and equity analysts and PMs offer both proprietary information and needed context. They sometimes discuss the potential implications of issues that are common knowledge, such as labor strikes, concentrated ownership and accounting practices. But investment teams may also provide opinions on individual MSCI ratings or even inform peers that ESG issues prompted them to either buy or sell particular assets.
The reporting that investment teams do upon engagement with management is also critical. One recent post relayed how we encouraged a company to take seriously a shareholder proposal to disclose more information about employee diversity, for example. Another described a meeting between our research analysts and a nonprofit organization that is protesting a company’s animal welfare policies.
After a particularly revealing engagement, an investment team may even change their investment thesis or adjust a portfolio’s holdings—and they can let their colleagues know on ESIGHT.
When Digital Platforms Feed One Another
ESIGHT builds on previous digitalization work by pulling in data from Prism, our online credit rating and scoring database. Prism allows any fixed-income PM, analyst or trader to access credit analysts’ views on individual issuers from a central location. ESIGHT makes those insights available to equities teams, too.
On Prism, credit analysts provide both numerical ratings and qualitative discussions about issuers across a number of different dimensions, including ESG. The numerical ratings allow investment teams to compare issuers across industry sectors, ratings categories and geographies, and along with other fundamental and quantitative research, directly affect security selection.
Investors in stocks and bonds are often interested in different issues, and swapping perspectives can provide a sharper picture of corporate operations. Bond investors are often concerned primarily with creditworthiness. Equity investors—and, to some degree, high-yield bond investors—are more interested in current and future cash flows, valuations, growth and investment.
Laying the Digital Foundation
As important as the insights investment teams can gain from ESIGHT is the act of digitalization. The marriage of proprietary information and third-party sources in a single platform, accessible to multiple teams, creates a road map for how other information might be shared across asset classes.
Putting information once shared only at the water cooler in a centralized location also opens the door to human-machine partnerships down the road. Machines are already good at analyzing large amounts of numerical data, but they’re getting better at “reading,” too. Software with sharp natural language processing capabilities may someday draw inferences humans would have missed from the meeting notes and viewpoints on ESIGHT. Digitalization in any form benefits clients now, but it also extends the runway for future innovation.
- Scott Krauthamer
- Senior Vice President—Global Head of Product Management and Strategy