HSBC announced the launch of the HSBC ESG Risk Improvers Index, aimed at tracking the performance of companies expected to benefit financially from improvements in ESG risk.

The new index was launched in partnership with ESG-focused financial technology company Arabesque AI, and will be powered by data from ESG Book, an ESG data and analytics platform developed by Arabesque AI.

According to Patrick Kondarjian, Global Head of Sustainability for Markets & Securities Services at HSBC, while traditional ESG investment approaches such as best-in-class that target high ESG ratings are agnostic to whether the stock’s ESG credentials have recently improved or deteriorated, the new index will enable investors to “gain exposure to stocks exhibiting ESG momentum — a useful financial indicator of future performance.”

The index will track the performance of over 1,000 liquid stocks of global companies, with ESG Book measuring ESG risk by calculating a score using artificial intelligence in the form of natural language processing, to mine public sources such as ESG-related news and NGO data daily. Arabesque AI will provide an “ESG momentum score” every six months for each constituent, determining if each has seen a change in ESG credentials. The companies said that investors will be able to use a range of products to allocate capital towards ESG improvers.

Yasin Rosowsky, Co-Founder and VP of Engineering, Arabesque AI, said:

“Based on our back-tested data, tilting investments towards stocks exhibiting ESG momentum showed excess returns per annum versus S&P global benchmarks during the same period. In other words, there is a positive correlation between companies transitioning to more sustainable business practices and their returns.”

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