Shenzhen-based WeBank is applying artificial-intelligence techniques to data from satellite imagery to develop indexes and other investment tools related to environmental risks among Chinese companies.
“A.I. has a wide application in asset management,” said Wu Haishan, deputy general manager at WeBank’s A.I. department. With investment firms around the world pouring money into developing ESG products (to control environmental, social and governance risks), WeBank sees a big opportunity to provide insights on top of China-related data sets.
One targeted customer base are local banks that are building out their wealth-management teams, a new trend following recent legal changes in China. Another is the country’s growing asset-management industry.
Foreign asset managers and banks are also potential customers. WeBank’s parent, Tencent, is in talks with BlackRock to introduce some of its investment tech, such as risk-management system Aladdin, to the local market (or develop something like Aladdin for local fund houses). Ant Financial, meanwhile, has struck a relationship with Vanguard to grow the local market for index funds and exchange-traded funds.
These are just examples of global investment firms eager to access the mainland China market, but Wu says any foreign shop using quantitative strategies to trade Chinese securities will be interested. He made these remarks via a translator at a conference on digital banking organized by SZ&W Group.
The WeBank ESG offer involves several capabilities, including adopting natural language processing to analyze corporate reports and financial statements. Another is to embed alternative data, which can include information gleaned from online retail sites and social media. WeBank has gone a step further, though, in how it collects data: it has its own fleet of small satellites that monitor China from space.
Together these sources are generating immediate insights into commodities, business development, and environmental changes.
Our idea was to put algos on the chips and put them into orbitWu Haishan, WeBank
New regulations require listed companies report their environmental impact, and that investors take these into account. “But there are no data sets available in China,” Wu said. “Satellite data lets us see a company’s operation.”
Microsatellites are now cheap, priced at below $100, and dozens can be released in low orbit with a single rocket launch. They can use infrared or radar to look through cloud cover. Wu notes there is an entire industry of tech companies in the U.S. doing this, but commercial satellites are new to China.
Algos in space
Such imagery has many uses for financial measurements and analysis. The data comes much more immediately than a financial report, and can reveal a company or city’s economic vitality. This in turn can be factored into a company’s risk model, and gives analysts a view into privately held companies too.
For example, counting cars in a parking lot, activity around oil storage tanks, and the impact of a new factory on nearby crop growth are all possible with satellite images.
WeBank is trying to compete against U.S. satellite rivals by embedding chips on the satellites themselves that can carry out machine-learning processes.
“Our idea was to put algos on the chips and put them into orbit,” Wu said. This should make data processing and analytics faster. This involves technical challenges, such as how to enable chips to operate at low energy levels, and Wu says this remains a work in progress.
Measuring China ESG
The raw data may not reveal much, so WeBank is applying algorithms to interpret changes and compare it to other sources of data. This can generate predictions, such as for crop yields, oil prices, prosperity and demand at a corporate or local level, and risks for certain industries, such as how much pollution a company’s factories emit.
The biggest opportunity may be for measuring environmental risks for investors with ESG mandates. WeBank can use its data to create ESG scores for companies. “In the U.S., many firms cover American and European corporates [for ESG risks] but lack data for Chinese companies,” Wu said.
So far WeBank has applied ESG metrics to 300 Chinese companies, and has found a correlation between ESG scores and their overall financial risk.