ESG: From Heterogeneity to Risk Factor
Part III: The complementarity of sentiment data
Alexis Flageollet, PhD
Juan Sebastian Caicedo, CFA
Equity Portfolio Manager
Written in March 2022
In the first two parts of this paper, we discussed the degree of heterogeneity that exists between the scores of different ESG rating providers and, in a second step, the importance of combining these different sources to improve the estimation of an ESG market factor.
Find part 1 on data heterogeneity here.
Find part 2 on the existence of an ESG risk factor here.
In this third and last part, we want to explore what benefits, both conceptual and practical, may result from the use of alternative data in addition to existing fundamental data. More concretely, nascent data based on sentiment analysis, estimated from recent artificial intelligence techniques, seem to be particularly interesting thanks to their complementary characteristics. This approach is part of the same informational complementarity objective that we have discussed so far and shows how the concept of “universal” ESG involves the measurement and analysis of different more directly observable variables.
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