Responsible Investing 2.0: How AI, big data and fintech alter the use of ESG factors

On November 27th, the FSI hosted its final luncheon of 2017 at the Saint-James Club. Continuing with the theme of AI,big data and fintech’s impact on ESG factors, our panel, moderated by FSI board member, Solène Hanquier, Sustainable Development Advisor at Desjardins Group, included three professionals from asset and portfolio management: Vincent Roy, Managing Director, Scientific Active Equity, BlackRock Asset Management Canada, Dr. Liam Cheung, Executive Chairman at Mylo Financial Technologies, Chief Executive Officer at Tactex Asset Management, and Paul Allard, President and Chief Ecosystem Officer, Impak Finance.

The conversation began with the panelist explaining how AI, big data analytics, and other forms of fintech have been incorporated into their business. Vincent Roy talked about how algorithms are used in their management of ETFs (exchange traded funds) and how the availability of big data means those algorithms can better incorporate ESG factors. For example, investments can be directed into areas that have greater social impact. Vincent cited how they can select areas of healthcare to invest in that will improve the greatest number of lives now that more data about measured impact is available. Of course, there is the concern that the algorithms will be replacing human decision-making in selecting stocks, but Vincent noted that while machines may take over the function of selecting the titles to trade, finance professionals remain essential to determining the applicable factors to ask the algorithm to address. Vincent is convinced that AI will lead to more jobs in the industry, though exact roles may change.

Mylo is a recent fintech product that helps users direct money into savings by rounding up each transactions a user makes and placing the pennies into an investment vehicle for a fixed $1/month fee. The platform is particularly popular with millennials who are not yet in the habit of saving and investing, and who are comfortable allowing a third party to access their real-time purchase history. While the fintech encourages savings, it also provides Mylo with a wealth of data about spending habits allowing algorithms to customised promotions and financial solutions through the app based on the user’s transaction history, demographics, location, social networking and Internet search activity. Privacy and data security are high on the agenda. Liam Cheung spoke about the incredible number of access attempts from illegitimate sources and described some of the precautions they take. Liam also spoke of their role in increasing financial literacy among this younger generation of new investors.

Cryptocurrency and blockchain systems are growing in popularity and rapidly disrupting some areas of the financial sector. Impak Finance is incorporating these technologies into their ecosystem with the launch of Impak Coin, a cryptocurrency that invests exclusively in social impact organizations on behalf of impact-concerned investors or as part of customer loyalty programs. Paul Allard provided the audience with a quick definition of blockchain and how it allowed for the creation of cryptocurrencies. He outlined its convenience and flexibility and underlined how Impak Coin was the first cryptocurrency to be approved by the Autorité des marchés financiers, making it legal tender. Paul explained that the fintech platform created by Impak Finance to match investors to social entrepreneurs also requires the measurement of the ESG benefit of investments. They are using the UN’s Sustainable Development Goals as the framework to track performance.

The audience tested our panel with a several questions, primarily focused on governance and then the speed at which implementation of these or similar technologies would be seen in finance. The panelists agreed that big data analytics is happening now, being fully incorporated into multiple streams of fintech. However, AI in the form of machine learning (such as self correcting algorithms based on massive amounts of data) is still in its early days, and few applications have yet been observed. But it’s coming!

FSI sincerely thanks the panelist for their collaboration.