Finance

Assessing diversity through technology, a complex exercise

“We see more and more interest on the part of investors for diversity. This is one of the most important subjects currently in terms of social risks”, notes the expert, who notes “a convergence of ESG issues on diversity and returns”. She cites the results of an MSCI study of 4,000 organizations showing that companies that have at least three women on their board of directors have produced a 10.1% return on capital since 2010, compared to 7.4% for companies with exclusively male governance.

How does diversity fit into the analysis of ESG criteria? “It brings a diversity of thought that stimulates innovation and promotes better workforce management practices in organizations,” replies the expert. These two issues are considered essential to business performance.

However, the study of diversity within organizations is still often limited to counting the proportion of men and women among managers or even the cultural origin of employees in terms of percentages, which is insufficient, comments the specialist. .

“The diversity that we must seek in organizations must be more cognitive than structural. It is a diversity that leads the organization to make more appropriate decisions,” adds François Bourdon, Managing Partner at Sustainable Market Strategies, invited to share his experience during the round table.

In the opinion of the experts, this diversity remains a difficult criterion to analyze, because its evaluation requires a good understanding of the data studied and, above all, their contextualization in order to avoid perception biases. “We need to improve the understanding of the data to better contextualize it. If they are not properly analyzed, the ESG indices are rather useless, because they are then similar to moral indices”, considers François Bourdon.

Used together, these technologies are also useful for analyzing diversity data. MSCI thus carried out a study in the United States using data collected using various tools (location, employee address, census statistics, etc.) to see if American companies were using the full range of talent available near their offices. The firm thus noted that, often, the companies employed rates of people resulting from the minorities lower than those which they had in their natural labor pool.

Technological tools can help meet the challenge of analyzing ESG data, acknowledges Bruno Taillardat, portfolio manager, smart active beta equities at Amundi. in order to be able to interpret them within the framework of an investment process”. On this subject, technologies do not provide all the answers, he believes. “AI will never replace human analysis and its intuitive ability to make management decisions. »

Another challenge is the lack of alternative data to analyze to assess the information disclosed by companies, experts lament. “Why rely solely on percentages to assess diversity? It may depend on many other factors. You have to be able to quantify other aspects,” says Jackie Daitchman.

In a context marked by uncertainty, as inflation climbs, energy prices soar and international relations are shaken, it is urgent to act, say the panelists. “We don’t have time to wait for the market to correct the problems,” insists the expert. We need to be more intentional with investments to direct them towards the solutions to these issues. »

The recent inclusion of ESG criteria in a guidance notice from the Canadian Securities Administrators on the publication of investment fund information is, according to the specialist, a step in the right direction to bring social and social interests closer together. the financial aspects.

Three technologies for analyzing ESG criteria

Here are some ways to use financial technologies suggested by the panelists.

  • The systematic analysis of companies’ annual reports by AI makes it possible to perceive how companies describe their ESG and what emerging risks they identify.
  • Machine learning can help track news that affects organizations, to understand how they manage their reputational risk in certain situations, especially when there is controversy.
  • Geospatial data analysis tools help to make data speak to highlight certain types of information, particularly on climate change, by measuring the frequency of floods in certain regions, for example.

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