“Everyone is using the same data – so we needed to find a way of setting ourselves apart from the competition”
The financial industry has always been a hunt for alpha, with the key question being, how can you use new and innovative approaches and technologies to outperform the market, and your competitors, financially?
For Qblue Balanced, a Copenhagen-based quantitative asset manager, the same is happening in the field of ESG investing. Founder and CEO, Bjarne Graven Larsen explains how as the ESG space becomes increasingly crowded, it is becoming harder and harder to standout, saying, “Everyone is using the same data – so we needed to find a way of setting ourselves apart from the competition”.
With their new fund, Global Sustainability Leaders, launched in April with fund manager Navigera, Qblue Balanced may just have found a way to do so.
In the construction of GlobalSustainability Leaders, Qblue Balanced utilised Matter’s SDG Signals. SDG Signals is an ML-driven Natural Language Processing sentiment analysis tool to assess how companies are perceived in Global News Media, aligned to the 17 United Nations Sustainable Development Goals. SDG Signals analyses over 60,000 articles across more than 38,000 companies, updated daily, to enable investors to keep their finger on the pulse of how companies are perceived.
So how do Qblue Balanced use SDG Signals, and why is it important?
SDG Signals as part of a balanced approach to sustainability analysis
Lars Voss Toft, Co-Founder and Senior Portfolio Manager at Qblue Balanced explains that, “Getting the right data at the right quality has been a challenge. That is probably why most people are using standard ratings – because they have been around for a while. We do something different by utilising a wide array of data sources whilst always looking for new ones”.
The result of this broad mindset is the Sustainability Cube™. Qblue Balanced aim to break the mould in their approach to investing, eliminating human bias by using a balanced, quantitative and systematic approach. They apply this same approach to sustainability. The Sustainability Cube™ is a three-pronged approach to company sustainability analysis. The first element is the Climate Transition Dimension, asking how well positioned companies are to transition to Net Zero. The second takes a classical ESG approach to identify ESG industry leaders. The final element looks at the SDGs – this is where SDG Signals comes in.
Just like Qblue Balanced do not rely on standard ESG ratings to educate their ESG strategy, neither do they rely on SDG Signals as a one-stop-shop solution. SDG Signals exists within Qblue Balanced’s Sustainability Cube™ as one part of a nuanced and balanced approach. This closely parallels our own approach at Matter, having written recently about the importance of how AI-driven solutions should be used as an integral component of an ESG approach, rather than an approach in and of itself.
This comprehensive approach has resulted in the Global Sustainable Leaders fund being labelled an Article 9 product under the EU SFDR (the most ambitious classification under the new regulation), with Matter’s SDG Signals being key in achieving that classification.
Tine Lundegaard, Chief Commercial Officer at Qblue Balanced explains that products which are ambitious on sustainability, and are classified Article 9 under SFDR will get even more attention moving into the future.
“At Qblue we believe that Sustainability is one of the most powerful trends we have seen in investing, and it is going to accelerate in decades to come. As this increases, it will be important to have a track record on sustainability.”
SDG Signals as the data of the future
SDG Signals is driven by the latest in Machine Learning and Artificial Intelligence technologies. As Voss Toft says, “it’s (SDG Signals) cutting edge technology based on ML and AI and having that in the portfolio is important right now. People think this will be the future of finance.”
SDG Signals as a potential predictor
Qblue Balanced believe that sentiment data, if done right, has the potential going forward to lead ESG ratings, and potentially even financial performance, with Voss Toft explaining, “If you create sentiment-based signals in the right way, which we believe Matter is doing, you will be able to predict which names are going to be revised up and down in ESG scores in the next weeks or months. If ESG is driving returns, and you can lead this with sentiment data, it becomes even better.”
Qblue Balanced do not discriminate between SDGs, and neither does SDG Signals
There is growing momentum behind the SDG investing movement. To date, however, data on how companies relate to the SDGs has been limited. SDG Signals represents a significant step in filling this gap.
According to Voss Toft “Some investors only use 4 or 5 SDGs, but we do not want to presume that one SDG is more important than another”. SDG Signals provides sentiment data across all 17 SDGs and treats them with equal importance.
Room to improve
Overall, for Qblue Balanced, SDG Signals serves as an exciting, future facing element of their approach to sustainability. Going forward, we will continue to work together with Qblue Balanced and likeminded investors and partners to sophisticate SDG Signals, and work towards even greater levels of granularity and confidence in aligning sentiment to the SDGs.