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Intelligent Investments: The Use of AI in ESG Investing

24 Feb 21
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by Safa Rahim, MA candidate in International Affairs, former intern at 4IP Group

ESG has been identified as one area where one-size fits all investment strategies do not work. Therefore, it is unrealistic to suggest that a single set of metrics and one methodology will meet the needs of the entire investor universe (The Economist,2019)[1]. The challenges lie in both the collection and the analysis of ESG data. One way to mitigate these challenges identified by experts is by the use of Artificial Intelligence or AI. AI allows investors to collect and analyse information more efficiently than before. AI has the power to identify key data for investors seeking sustainable investments by filtering essential data that investors lack.[2]

The technologies enable the processing of data in addition to specialised features like analysing the tone of text using ‘sentiment analysis’. Sentiment analysis, also commonly known as opinion extraction, opinion mining, sentiment mining and subjectivity analysis looks at the use of natural language processing and text analysis techniques to systematically identify, extract and quantify subjective information and attitudes from various sources. The sentiment could be related to the financial health, credit risk, business dealings, growth expectations for employee satisfaction. The inclusion of AI into investing patterns increases “intelligent investments”.

The year 2020 saw some of the most innovative platforms launched in the ESG sector. For instance: Climate Action 100+, an investor-led initiative has been developed to ensure regulatory compliance in order to mitigate the evils of climate change.[3] Another such platform developed in 2020 was the Arabesque S-Ray Temperature Score, which is a unique new metric that measures the extent to which corporations across the world are contributing to the rise in global temperature.[4] Forbes anticipates the investors to integrate anticipatory regulatory changes as well as the risk perceptions in sustainable investment into their decision making with the help of technology, resulting in the rise of ‘intelligent ESG investing’.[5] These new technologies are to create a trend as more investors around the world are seen to align the objectives of their companies with the objectives of the Paris Agreement in 2021. This is particularly the case as companies will have to make radical changes to their portfolios or face a drastic reduction in the sectors that are qualified for investment.[6] Regions like Europe have already developed comprehensive roadmaps in the form of the Green Deal, and in justifying what type of investments should be encouraged.

The infrastructure sector surprisingly lags behind the public equity and fixed income sectors in ESG presence, despite the fact that infrastructure sources are responsible for over 60% of Global Greenhouse Gases. According to the UN PRI, the challenges for integrating ESG metrics into clean infrastructure investment vehicles include:

  • Difficulty weighing the value of different environmental and social outcomes across regions and investment horizons. For example, how does one determine whether it is more valuable to mitigate a unit of greenhouse gas emitted in Germany in 2020 versus electrifying a village in Rwanda in 2025?
  • Difficulty applying a consistent rating framework across unique investments. There are no standardized ESG metrics for the infrastructure sector.
  • Monitoring investments to ensure that the anticipated benefits are realized.

Urban Matrix One is the first company to use explainable Artificial Intelligence to attempt to solve these problems. They use unique data sets and algorithms to estimate and monitor environmental, social, and economic outcomes for global infrastructure investments. They allow investors to customize their priorities and compare the value of different environmental and social outcomes. They enable investors to monitor the environmental, social, and economic returns of their investments in real time.

They believe these tools will allow asset managers to capitalize on institutional and retail dollars devoted to ESG strategies and put this capital to work creating a more sustainable world.[7]


[1] Green Intelligence: Asia’s ESG Investing, data integrity and technology. (2019). The Economist Intelligence Unit. https://eiuperspectives.economist.com/sites/default/files/green_intelligence_eiu_e_fund.pdf

[2] Laidlaw, Jennifer. (2019). Amid global push for sustainable investing, AI could be crucial catalyst. S&P Global Market Intelligence. 

https://www.spglobal.com/marketintelligence/en/news-insights/latest-news-headlines/54265151

[3]  Climate Action 100+ Website: https://www.climateaction100.org/

[4] Arabesque Website: FAQs. https://www.arabesque.com/docs/sray/marketing/temperature/Temperature_Score_FAQ.pdf

[5] Kell, Georg. (2020).  Will 2021 be the Transition Year for Climate Action. Forbes.   https://www.forbes.com/sites/georgkell/2020/08/17/will-2021-be-the-transition-year-for-climate-action/?sh=7714c53d4d79

[6]  Lee, Linda-Eling & Eastman, Meggin Thwing.(2020). 2021 ESG Trends to Watch. MSCI https://www.msci.com/www/blog-posts/2021-esg-trends-to-watch/02227813256

[7] Source: Infrastructure & ESG Investment. One of the most notable investment… | by dan lichtenberg | Urban Matrix One | Medium accessed 23rd of February 2021.

4IP 2021/1 Newsletter is published!

31 Jan 21
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Read our newsletter to learn everything that is new with 4IP here

“PPPs, the road to the SDGs?”, a book for the PPP practitioners

06 Sep 20
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I have written “PPPs , the road to the SDGs?”  to fill a gap in the existing PPP literature. On the one hand, quite a few theoretical or academic books on PPPs are available. They provide a general view on the purpose and the mechanics that drive PPPs and as such represent a must-read for all those that are looking for a general introduction to PPPs.  On the other hand, a wealth of articles and case studies describe successes (more often than failures) of PPP projects.

What is largely missing is how you go from the principles of PPPs to the completed project. In other words, what are the challenges and difficulties that the PPP practitioner has to cope with and should overcome to succeed? As we all know, PPPs are complicated, and if there existed somewhere a cemetery of the good PPP ideas that never came to fruition, this place would be more crowded that the world of the living projects. Considering the difficulties of PPPs, the places where PPP practitioners can share experience and gain real life useful advice are surprisingly few. This is by the way the background that led to the creation of the World Association of PPP Units and PPP practitioners (WAPPP); another avenue for a developing country PPP Unit is to take advantage of technical assistance projects or capacity building plans which are mostly funded by donors. The limitation to these programs is that they take time to get implemented and their schedule does not necessarily coincide with the immediate issues a PPP Unit is faced with. The end result of all these is that it is difficult for a PPP unit officer or a policy-maker to get immediate responses to very concrete issues arising from the will to undertake the design and rolling-out of a PPP program.

“PPPs, the road to the SDGs?” is an attempt to fill this gap. I have tried in this book to put on paper my experience as a PPP adviser to PPP units that extends over several continents and many years.  By nature, this is not a handbook with a systematic approach; it is also not a collection of case studies. It is rather largely based in a pragmatic way on collected essays and reports that were written at the request of clients and beneficiaries to address their immediate needs. It contains general considerations and contributions, sector issues as well as practical description of a range of tools that are central to the everyday life of a PPP unit. This variety of contributions can be of interest not only to PPP units management and staff, but also to public officials, and more broadly to a wider audience interested in PPPs, such as corporations willing to better understand the reasoning behind the PPP units decisions, NGOs that need to assess PPP projects, journalists and the general public. To my knowledge this type of insider material is practically never made public.

Geoffrey Hamilton , head of PPP program at UNECE,  said in his foreword to the book that “I sincerely  hope this work […] will help its readers  to implement more and better PPP projects that will serve the interests of those most at needs.”  Somewhat similarly, Ziad Hayek, President of WAPPP, asserts that “I am convinced that this book will add a significant contribution to our shared efforts in promoting and developing successful PPPs”.

The paradox is that the countries that most require PPPs in view of  their infrastructure deficit and scarcity of public capital, are also the countries  where the challenges to successful PPPs are the most difficult to overcome. The international community should scale up its effort, not necessarily with more money but with more experience sharing, practical capacity building and mutual support. The book is intended to support these efforts with a true and honest approach that manages expectations and provides guidance all along the way of the project cycle.

Book available at https://www.amazon.com/dp/B08BDVMZ8R

Thibaut MOURGUES

Newsletter N°8

05 Aug 20
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Our newsletter is published!

You can read it here: 4IP Group_News bulletin No 8_Jan-July 2020_Clean

4IP Newsletter

22 Jun 20
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Download our 2020 Newsletter:     4IP Group_News bulletin No 7_July-Dec 2019_v1

Health PPPs and pandemic

07 Jun 20
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Health PPPs and Pandemic By Thibaut Mourgues, Member Executive Committee, #WAPPP and Managing Partner at 4IP Infrastructure and Impact Investing
In a time of emergency such as what we are all currently experiencing, many people tend to believe that Public Private Partnerships (#PPPs) are not the most suitable tool to contribute to the fight against a #pandemic. The reason is that PPPs in the meaning of the World Bank usually refer to #infrastructureprojects that require years of #planning#design and #construction before providing any operational support. Could they be wrong? Could PPPs be effective also in time of #crisis?
https://lnkd.in/dqAWtAj
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Health PPPs and Pandemic

4IP involved in UNECE Impact assessment tool development

07 Jun 20
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Building back stronger: UNECE mobilizes experts, incl. 4IP Infrastructure and Impact Investing two Managing Partner and two members of our #InfrastructureImpactFund‘s #Advisory committee, to better #evaluate #resilience of #infrastructure & #‎publicservices.
UNECE’s work to develop an #evaluationmethodology to #score #infrastructureprojects against #SDGs. At a virtual meeting on 23 March 2020, the UNECE Project Team, established in January 2020, unanimously agreed to integrate most robust #resiliencecriteria into the #Peoplefirst #ProjectImpactAssessmentTool that is being developed.

This new UNECE tool will make it possible to #evaluate & #test the #quality of infrastructure & public services incl #PPPs.
The UNECE-led Project Team consists of over 100 experts, incl. Thibaut Mourgues & Christian Kingombe . They work in 5 sub-teams to define #benchmarks or #evaluationcriteria and a #scoringsystem for #Peoplefirstoutcomes. These are:
1. access & equity
2. #economiceffectiveness
3. environmental sustainability and resilience
4. replicability
5. stakeholder engagement.
https://lnkd.in/d93i4rU

Impact investing in Zambia: 4IP contribution

07 Jun 20
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#IIXChapterLusaka, founded by 4IP Infrastructure and Impact Investing Managing Partner Christian Kingombe, is a key part of the The Global Steering Group for Impact Investment (GSG) National Advisory Board for Impact Investing secretariat driving #Zambia‘s recent recognition as #ChampionGSGII NABII National Advisory Board.

BUILDING RESILIENCE ONE COUNTRY AT A TIME:
Spotlight on #Zambia

Now more than ever, #impactinvesting is needed as a critical #riskmitigation strategy, helping to build more #resilient and healthy communities through the lens of #risk#return, and #impact. IIX’s Chapters around the world are doing precisely that, helping countries like #Zambia prepare to weather the global crisis.
Impact Investment Exchange (IIX) Chapters are spearheaded by #graduates of IIX Impact Institute, where leaders are equipped to #transformfinance by embracing, #measuring, and #innovating solutions to #risk.

https://lnkd.in/dC_bgih

PPP Planning in post-Covid 19 world

07 Jun 20
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In this WAPPP, APMG hosted webinar, panelists discuss the impact of the COVID-19 Pandemic on PPP projects and programs, how to deal with its repercussions, offer lessons learned, and share opportunities that might come out of the pandemic I had the pleasure and honour to be one of the panelists; I tried to explore the fall-out of the crisis on PPPs at various time horizons, considering the turnng point that we are facing.

This presentation was a collaboration between
#WAPPP World Association of PPP Units and APMG. Over 180 participants followed the session.

The presenters were :

David Baxter, International Development Consultant, PPP Navigator
Marc Frilet, Concession and PPP Expert, Frilet Société d’Avocats
Natalia Korchakova-Heeb, Managing Director, SDG.17 Consulting GmbH
Thibaut Mourgues, Co-Founder and Managing Partner, 4IP Group Sàrl/LLC
Naresh Bana, F.I.E., M.I.M.A., M.I.P.W.E. Bana, Chair of WAPPP Editorial Board
Michael Dallas : Director APM Group (Host)

To access the slides and recording of the webinar, follow this link.:
https://lnkd.in/d26NVCa

Zambia Joins the Global Steering Group for Impact Investment network

22 Nov 19
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By Haggai Chomba, 22nd November 2019

The Global Steering Group for Impact Investment (GSG) formally announced the launch of a National Advisory Board for Impact Investment (NABII) in Zambia during the 2019 GSG Impact Summit held in Buenos Aires, Argentina from 18-19 November, 2019. The formation of the NABII is a critical step in the development of impact investment in Zambia.

 The NABII Zambia initially started as a Taskforce launched in December, 2018 comprising of highly technical and qualified eminent individuals accomplished in their own rights emanating from the five pillars1 of the impact investment ecosystem namely: Supply, Demand, Intermediary, Market enabler, and Policy & regulation. Since the launch, the Zambia GSG Taskforce has been working through the membership process of the GSG for almost a year now until this week’s on-boarding to the GSG network thereby becoming a NABII.

The launch of the NABII in Zambia comes at critical time when the country needs more impact capital to achieve the 2030 SDGs and finance its Seven National Development Plan (7NDP). The Africa 2030 plan for reaching the SDG requires a minimum financing of USD 500 billion annually (SDGC Africa, 2019). When extrapolating research data from SDG Centre for Africa, Zambia needs to increase the level of investments in its impact sectors five-fold to USD 5 billion per year in order to achieve the SDGs by 2030. This corresponds to 1000 new investments per year when applying the average historical deal size. This illustrates the significant interventions required within the Zambian Impact investment ecosystem.

The NABII Zambia strategic direction will be governed by the single ultimate objective of ensuring a continued and sustained impact investment that recognises a return to capital while creating both social and environment benefits. The NABII Zambia will be focussing on removing impact investment ecosystem constraints through deepening impact investment awareness, institutional capacity building and improving the quality of the pipeline of impact investment projects in order to support the creation of a private sector driven impact economy in Zambia.

Zambia becomes the second country in Africa to successfully join the GSG network for impact investment. Undoubtedly, this adds momentum to the growth of impact investment in the Africa and will be a powerful force for addressing impact investment challenges identified in the country’s ecosystem context study report. Joining the GSG will not only give impact movement in Zambia international credibility but also allow the country to learn from international impact investment best practices.

About the National Advisory Board for Impact Investment Zambia

The NABII Zambia is an independent, influential private cross-sector driven coalition dedicated to driving more capital to improve lives and the environment. The NABII is a vanguard for impact investment and serves as a platform for connecting vehicles between local and global actors focused on directing private capital to public purpose. NABII’s mission is to mobilise stakeholders and resources to support the creation of a private sector driven impact economy in Zambiia.

About the Global Steering Group for Impact Investment

The GSG is an independent, multisectoral global entity catalysing impact investment and entrepreneurship to benefit people and the planet. It is present in 33 countries and the EU through National Advisory Boards (NABs) that bring together leaders from the worlds of finance, business and philanthropy to drive the adoption of measurable impact in all investment and business decision-making.