5 Telltale Signs It's Time to Use AI to Mitigate Risk on Your Portfolios

By: SESAMm | October 13, 2023

One of the biggest challenges in risk monitoring is sifting through mountains of irrelevant data. Whether you're using search engines, financial news platforms, or even specialized in-house analytics, you end up with too much noise. Scrolling through to page 12 of Google is not only time-consuming, but leaves you with the nagging feeling that you could still be missing something. 

Artificial Intelligence (AI) is a hot topic, with new breakthroughs and possible applications popping up every day. The question is no longer simply “can AI help me with that?” but rather “how can I use AI to help with that?” For Environmental, Social, and Governance (ESG) controversy and risk monitoring, AI is used to sift through enormous data sets at unparalleled speeds, bringing critical insights to the forefront faster and more efficiently than humanly possible. 

When there are hundreds of companies to monitor, for example in a large investment portfolio or a group of suppliers, the advantages of AI are obvious. But what about smaller portfolios? How do you know it’s time to start using AI? Based on our experience working with private equity firms, asset managers and commercial banks, we’ve pulled together five signs that it’s time to consider AI.

1. Overwhelmed by Data: There's Too Much Noise


An AI-powered tool filters out the noise, even in situations where seemingly only humans would be able to do it, giving you the peace of mind that there’s no controversy lurking in the dark corners of the web. All of the key information is gathered in one place, ready for you to evaluate and decide the best course of action.

2. Difficulty Finding Critical Information: The Black Hole of Private Companies

On the flip side - sometimes instead of finding too much data, you can’t find any data at all. For private companies, information can be scarce, especially for smaller companies based overseas, where the only news coverage is local and in the local language. In this case, ESG ratings agencies often aren’t able to fill the gap either. There are millions of firms worldwide and less than 50,000 of them are covered by rating agencies (source). 

AI, on the other hand, enables systematic coverage and statistically relevant results without human intervention, analyzing millions of websites and providing coverage on millions of public & private companies. If you are struggling to find information on a company, AI might be the answer.

 

3. Can't Accurately Analyze an Event: The Context is Missing

Beyond the actual controversy or event itself, understanding the context and history around it is essential for risk assessment. Is this a one-off concern or part of a recurring pattern? To get the full picture, you need to take a closer look not only at the company in question, but the key players, i.e. key executives, and the industry as a whole to understand if this is within the norms. 

AI has an important role to play here also. By simply expanding the search, AI can provide you with a full picture of the controversy, including a quick summary and a benchmark against competitors in just a matter of minutes. 

 

4. Missed Critical Window for Action: The Cost of Inefficiency

Markets can change quickly - and it’s only getting worse as information is spreading faster and more widely. The more time it takes you to gather and analyze information, the less time you have to react. This can be a challenge whether you are monitoring 30 companies or 100’s. If you find yourself trapped in a cycle of reacting to news rather than acting proactively, AI can help. Because AI scans and analyzes information in seconds, the alerts to potential controversies are in near real-time, allowing you as much time as possible to take action. 

 

5. Missing ESG Expertise: The Knowledge Gap

To top it all off, ESG is complex and constantly evolving. Understanding what data is relevant and how to evaluate it requires real expertise. ESG rating agencies provide some guidance, but they typically leverage self-reported data - which is naturally biased. Take greenwashing for example where a company misleads its stakeholders, investors, and consumers about its environmental practices by communicating positive environmental performance contrary to its actual, less positive execution. It’s difficult to identify greenwashing using self-reported data.

Because AI relies on external stakeholders, such as online forums or news sources, it offers an unbiased take on a company’s ESG performance. Additionally, by choosing an AI with ESG expertise built-in, you benefit from an expert analysis without increasing the burden on your team. 

As the speed and amount of information available continues to grow, AI offers a scalable way to monitor your partners, suppliers and portfolio. To learn more and find out if AI is a good fit for your company, contact our experts at SESAMm.

 


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