DigFin Green is our series profiling leaders in fintech companies addressing environment, social, and governance (ESG) solutions, using technology to power financial services towards sustainable outcomes. Contact us if you would like to be included.
Stephen Jue is president of PortageBay, an artificial-intelligence ESG solution for financial institutions and corporations.
He has a background in asset management and technology, previously serving as head of projects for the AI group in active equities at BlackRock. He has also worked at SPARX Asset Management investing in technology, media and telecom sectors, an experience that he continued at SPARX spinout Nexus Investment Advisors.
He recently spoke at Hong Kong’s Asian Financial Forum as one of several startups operating in the government’s Cyberport program.
What problem are you addressing?
Financial institutions such as asset owners, asset managers, and banks are in a unique position to transition our world to a low-carbon economy. The dollar amounts to be invested are massive. This creates revenue opportunities from ESG investment products, but how do you create these so they are credible and differentiated?
ESG-dedicated funds are on track to reach $325 billion by 2025, representing about one third of global assets under management for the funds industry. At the recent COP26 environmental summit in Glasgow, financial institutions committed $130 trillion of financial assets to reach net carbon zero emissions.
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The trend toward net zero is clear, but for fund managers, developing in-house investment capabilities is expensive and slow. Asset managers lack internal ESG experts. They face challenges in acquiring data. There is no clarity around incorporating ESG factors into existing investment processes.
What does PortageBay do?
PortageBay solves these bottlenecks by helping asset managers create internal ESG house views. We’re an AI ESG company that helps investors deliver differentiated ESG portfolios that make money.
We enable investors by helping them access ESG data as well as research tools for creating portfolios. Our AI helps them mitigate both ESG factor and investment risk, while ensuring financial institutions meet their sustainability commitments.
PortageBay has a pipeline of client leads among large global financial institutions. We are looking for Asia-based financial institutions to pilot solutions. We’re not actively seeking capital, but we’re interested in conversations with potential investors and partners.
What does this look like in practice?
Fixed income is likely to be the primary pathway to deploying trillions of dollars in climate finance. Last year we saw $1 trillion in ESG bond issuance. Sustainability-linked loans and transition bonds will be huge. Because KPIs [about what counts as ‘green’ finance] are at the entity leve, not the project level, this requires investors have an internal ESG investment capability. It’s not something that should be fully outsourced.
To manage and understand these risks, we start with data analytics. We look at thousands of companies to benchmark their ESG performance in the context of fundamental investment metrics. Our machine-learning models identify which ESG metrics matter the most for company valuation and portfolio returns; these differ significantly across sectors.
We help investment firms create differentiated portfolios at scale. We do this by delivering all the necessary components, including data, quantitative analytics, and AI-driven portfolio analytics.
These capabilities together help investors create bespoke products such as sustainability-linked loan portfolios or impact funds, or it just enhances their research process.
What else do we need to know?
There’s no need to feel like ESG means sacrificing returns. There is in fact a valuation premium on good, well managed companies. Their total returns are widening [relative to poorly run peers].
The transition to a lower carbon world will require companies manage a changing legal and regulatory environment, as well as take advantage of new opportunities and guard against new threats across their products and services. Those companies that manage these changes well are more likely to outperform. Therefore, ESG is now an important part of any investment process.