NN IP: ESG sentiment helps time risky assets and is more predictive of credits than equities

NN IP: ESG sentiment helps time risky assets and is more predictive of credits than equities

July 27, 2021

ESG
Duurzaam (10) energietransitie

Sentiment on Environmental, Social and Governance (ESG) topics derived from news and social media helps explain market moves in risky assets. NN Investment Partners (NNIP) reached this conclusion after testing ESG sentiment for its six-month forecast model.

Based on the statistical tests, NN IP gives ESG sentiment indicators a weight ranging from ~6% to ~18% in various models for equities and corporate credit. Interestingly, ESG indicators explain performance of corporate bonds more than equities. These indicators have an average weight of 17.4% in  models for corporate bonds and only 10.9% in models for equities. The indicators have been mapped to the United Nations Social Development Goals and use natural language processing (NLP) to measure sentiment and cover both countries and individual companies.

Aviral Utkarsh, Multi Asset Strategist at NN IP:

“Our own ESG indicators are now an important part of the quantitative models we use for dynamic asset allocation decisions. Our rigorous statistical testing process has shown that ESG sentiment data can consistently help improve asset allocation decisions and provide a way to monitor ESG developments in countries and in companies. The data, which represent the views of independent third-party observers, also add objectivity to the ESG assessment.”

*Data is provided by Truevalue Labs and Marketpsych

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