Alumni case study: Analysing ESG data for a new generation of investors

Olivier Khatib (MSc Management 2015, MSc Computer Science 2016), Co-founder and CTO of Sensefolio, talks to us about using big-data to analyse the ethical and environmental impact of businesses and why this is so important for the new generation of investors.

Tell us about Sensefolio

 After working for a few years in the finance industry, I realised how important global Environmental, Social and Governance (ESG) and Sustainability topics were becoming to the sector. Every single investment bank, asset manager, and even hedge funds have started adopting ESG in various forms. In my experience however, many ESG data providers did not capture all of the material impacts companies can have and there was the potential for bias. I wanted to overcome this challenge by aggregating even more sources of information.

At Sensefolio we retrieve a lot of data – news, companies’ annual and ESG reports, company reviews from current or past employees, social media posts, and even NGO reports. The aim is to assess and monitor on a real-time basis companies’ involvement in ESG topics while having an unbiased and objective view. Even though ESG data can take some time to impact the actual underlying companies, it is important to have scores on a real-time basis as news can significantly influence the market, as well as the company’s near future. You cannot solely rely on what companies disclose in their quarterly reports. Sensefolio cover more than 20,000 global companies and more than 80 countries and analyse more than 100,000 different sources of information using trained Machine Learning and Natural Language Processing algorithms. We have also developed robust frameworks that allow us to standardize our ratings across companies and countries. 

Why is ESG data so important to investors?

Investors are mostly adapting to clients’ needs and demands. With the new generation of investors such as millennials, they have to adapt to an audience that still want good returns of investment but are stricter in their investment decisions – which companies they are investing in, how ethical are they, how sustainable are there etc. The new generation is fully aware of risks coming from climate change or work ethics, and they are also aware that some companies are contributing to this more than others.

It is really important to first work in the industry you are interested in and see what is lacking and find a solution. It’s also good to build up relevant network and connections while working beforehand.

ESG data can provide a great tool kit for portfolio risk management. It allows managers to assess and monitor not only the risk of investing in a certain company, but also to position and locate it in the region it operate or deals in. 

What was the greatest challenge you faced in launching your business?

The greatest challenge when starting out is always on how to develop your product or services. You know what your output will be, but you don’t necessarily know all the steps that will lead to it. In our case, it was the whole big-data framework and infrastructure as we are dealing with a lot of statistical information. It was also about understanding and developing all of the artificial intelligence algorithms that would lead to our final ESG scores. We always tend to underestimate how much time it takes to finalise a product. But if you believe in your product/service, nothing will stop you!

How is AI and fintech influencing business today?

Finance professionals are starting to realize how important A.I. is becoming and the impact it can have on the daily operations. They are aware that new algorithms will make their work more efficient, simpler and quicker. This allows them to do much more and be more productive. This is definitely something that would not have been possible without powerful computers and optimal algorithms and makes A.I. significant in an industry relying heavily on big-data. I strongly believe that ESG data based on A.I. will become extremely popular. There is so much information, that even if you hire a team of 200 people, you won’t get as much insight as sophisticated algorithms.

What have been the key lessons learned from the whole process?

Perseverance! You will see a few competitors in the market, and most of the time they are big institutions already with a lot of clients. But if you truly believe in your product/solution and you truly believe you are adding value, then persevere. Don’t be impressed by big players. Most of the time, they are too big, thus very slow at adapting to change. This is not the case for startups, which are very receptive and adaptive to innovation, and constant improvements.

Any advice to budding entrepreneurs?

Don’t get into the entrepreneurship space if you don’t have any experience in the specific product/service area. It is really important to first work in the industry you are interested in and see what is lacking and find a solution. It’s also good to build up relevant network and connections while working beforehand.

Keep believing in your dreams. If you really believe it is going to work, it should work. There will be more downs than ups, more challenges than good outcomes. But perseverance is key. Never give up.

How did your time at the Business School prepare you for setting up your own business?

I studied at the Business School when sustainability, CSR and ESG topics were becoming extremely popular. I even did my dissertation on “CSR: How does that affect consumer behaviour?” This allowed me to get deeper into these subjects and gain a greater understanding. The Business School prepared me for setting up my own business not only by learning more about ESG and sustainability, but also by developing the business and convincing clients to adopt our ESG data.

Where do you see yourself and the business in 5 years’ time?

I see the business growing and the demand for ESG data at its peak. The new generation of investors will be even more present in the investment market and they will be more focused on investing in ethical, sustainable and transparent companies. We will have to face this growing demand and respond to their expectations.