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The more things change, the more they stay the same

ChatGPT was asked by Quantdare whether ESG is important when building a portfolio. Its response was fairly similar to Truffle’s own thinking around it:

“Yes, ESG (environmental, social, and governance) factors can be important when building a portfolio. These factors can impact a company’s performance and can be used to identify potential risks and opportunities.”

What’s fascinating about the AI (artificial intelligence) and ESG fields is that both have seen exponential change and growth in interest over the last few decades. Despite this growth and evolution, the core themes within each field have remained the same.
The term AI was first coined in 1956 however for centuries before that, philosophers and writers talked about the idea of machines simulating human intelligence. ESG had its first mainstream mention in a 2004 United Nations report called “Who Cares Wins”. However, for centuries prior to this, ESG practices were effectively in place as investors and the public held companies and governments accountable for creating more sustainable practices. Actions taken included a lawsuit against Anaconda Company (a copper miner) for water-borne environmental damages in 1903, and sanctions and a push for divestment from South African companies in the 1970s and 1980s to protest the Apartheid government.

Enter regulation.

AI is still a developing field and as such regulation only started to pick up steam in 2019. ESG on the other hand has experienced a proliferation of regulation over time, particularly related to disclosure as stakeholders strive to better measure the impact of ESG on investment or financial outcomes.

Figure 1: Growth of global ESG regulation standards

Fortunately, regulators plan to harmonise some of the disclosure requirements. This is something we at Truffle are really excited about because it better allows us to incorporate ESG into our process.

Themes unchanged, conversations evolving.

Despite the consistent rise of interest in ESG, conversation topics remain the same. As shown in the table below, many themes identified years ago are ones we’re still discussing and trying to progress today.

Figure 2: ESG topic trends

ESG themes and concerns, such as climate change, tend to be long-term in nature and discussions amongst stakeholders will continue to evolve as information becomes more readily available. In AI the same concerns are still there; mainly around input data bias, as well as the ethical use of AI. While AI and ESG are two very different fields, both are growing concepts for the investment industry. Truffle adopts an agile approach to investing and with our focused approach to ESG, we see AI as the next step in the evolution of our investment process.

Despite the consistent evolution and growth of ESG, conversation topics remain the same.

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