Thistle AI is a fintech that develops artificial intelligence technologies for the management and optimization of the private debt market created by Altin Kadareja. The company claims that correct approach to ESG factors should follow what happens for other elements taken into consideration in the investment strategies. As well as the definition of objectives, planning a strategy, quantifying success and applying data analysis for a progressive and continuous improvement of the approach itself.
Investment Strategies: Setting meaningful goals for ESG
Also for ESG, as for other thematic areas, the first step is to identify the goals of the investment strategy. In the case of the sustainabilitythe latter will need to include having a positive influence on the environment or society, which however can be particularly difficult to track and quantify.
At Cardo AI, it is considered essential to set clear, time-limited and measurable goals. For example, a private debt fund could set an ESG target of reducing its carbon footprint by at least 50% by 2030 to outperform the benchmark by an average of 50 basis points year over year.
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Implementation of a winning strategy
On the strategic front, it is considered essential to adopt a sustainable investment policy that takes into account ESG factors throughout the investment management lifecycle, from researching offers to evaluating, structuring, investing, monitoring and exiting.
A particularly important element to consider at this stage is the data availability. Even the most ambitious and enterprising managers often fail to implement effective ESG policies as they lack the data required in the enforcement and monitoring phases.
The strategic one is also the most appropriate phase of the process to involve defining ESG covenants. The tools to use are both those positive – such as the application of dynamic prices and the reduction of the interest rate in case of achievement of ESG objectives – both those negatives – such as the reduction of funding limits or the conversion of shares in case of non-compliance with ESG factors.
In addition to the definition of a clear investment strategy, the structuring of a specific is also essential monitoring plan taking into account progress towards objectives and investment management agreement compliance.
Aware that the application of plans in practice will always result challengesgray areas and unforeseen obstacles, we believe it is essential that the monitoring plan is reviewed regularly and that it also has the right flexibility in case of a serious change in circumstances.
The risk of greenwashing
The demand for transparency on sustainable and socially responsible practices is on the rise today. Clients as well as fund and asset managers want to invest in organizations that have a positive impact on the world, thereby aligning investments both with their own values and regulatory demands.
This trend therefore requires that institutional investors actively engage in improving the reporting in the ESG area and, to do so, a growing and increasingly relevant availability of ESG data will be needed. To date, in fact, the risk of greenwashing in the realm of investing ESG still remains a significant problem.
Among the many ways to maintain an accurate representation of efforts on the sustainability front, Cardo finds it interesting and effective to use monitoring tools that allow investors to receive detailed investment data e KPI ESG that demonstrate how much the investment policy pursued is actually in line with customer expectations. These tools are especially valuable because they can quickly and easily compare the handling of all the assets in an investor’s portfolio.
Investment strategies, the incorporation of ESG factors in pension funds
We might think that the increased emphasis on ESG investing requires a different approach to investment in the case of pension funds risk. The very nature of pension fund investment strategies, which have a long-term horizon and exposure to the local and global economy, requires a good understanding of climate-related risks and the impacts they could have on portfolios over the long term.
In particular, trustees today are required to disclose a declaration that explains how financially relevant and non-financially relevant factors are considered and measured, over the plan’s time horizon, in selecting, maintaining and making investments. In incorporating ESG issues into investment decisions and investment implementation, we find it useful for pension funds to apply an asset class distinction.