Artificial Intelligence Could Restore Enthusiasm for ESG Investing

Environmental, social, and governance (ESG) has endured its share of criticism. The fact remains that plenty of market participants remain committed to this style of capital allocation.

The same is true of many retail investors, including those in younger demographics. They’re committed to ESG investing and they take a long-term view of it. That could be good news for exchange traded funds such as the Invesco ESG Nasdaq 100 ETF (QQMG) and the Invesco ESG Nasdaq Next Gen 100 ETF (QQJG).

Admittedly, this type of investing has been the subject of much controversy and derision. However, when greenwashing is avoided and ESG is deployed with proper execution and standards, it can benefit end users. For example, QQMG returned 34.47% for the year ending May 2. Additionally, one more point can potentially add to the allure of QQJG and QQMG for long-term investors. Some market observers believe artificial intelligence (AI) can renew enthusiasm for it.

AI Could Restore Confidence in ESG

Owing to rigid standards and index methodologies that steer clear of greenwashing, QQJG and QQMG have avoided much of the controversy aimed at environmental, social, and governance investing. That could set the stage for the funds to be beneficiaries of the AI/ESG intersection in the years to come.

“The resultant backlash, including blacklisting of major financial groups and legislative restrictions in certain states, underscores the urgent need for a re-evaluation of ESG frameworks,” noted deVere Group CEO Nigel Green. “But we believe there’s a transformative potential in emerging technologies, particularly Artificial Intelligence (AI), which will redefine and revitalize responsible investing.”

Green points out that on a technological basis, AI can be harnessed to improve ESG assessments. It has the potential to deliver cleaner approaches to investors. That could imply that some holdings in QQJG and QQMG have end markets they’re not yet serving.

“This shift goes beyond mere rebranding. It necessitates a major change in assessment methodologies, moving away from rigid scores and checklists towards deeper, more nuanced analyses,” added Green. “This is where we see AI poised to revolutionize ESG assessment by leveraging its unparalleled capabilities in data analysis, pattern recognition, and predictive modeling.”

Natural Language Processing (NLP) is a technology supported by some QQMG member firms. It is an example of how AI can be deployed in real time to improve ESG ratings and scoring. Additionally, some QQJG and QQMG components could develop AI-based analytics. This may further bolster evolution in ESG investing.

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