AI in ESG (Environmental, Social, Governance) Investment Analysis

AI in ESG (Environmental, Social, Governance) Investment Analysis

1Dr. Kiran Kumar M, 2Tirth Mehta, 3 Chaitra Harish, 4Jayesh Hedau

 1Assistant Professor, 2MBA Student- Finance, 3MBA Student- Finance, 4MBA Student- Finance, 1Kiranm287@gmail.com, 2 chaitra_g23@cms.ac.in, 3 mehta_tirth23@cms.ac.in, 4jayesh_hedau23@cms.ac.in Faculty of Management Studies, CMS B School, Jain(Deemed-to-be University), Bangalore

Abstract

This study explores the possible relationship between strong Environmental, Social, and Governance (ESG) credentials and hence the relevant financial performance, through the AI-aided analysis. As sustainable investing becomes more and more important, investors are increasingly emphasizing a company's ESG score - this is now considered a criterion to judge whether or not they operate ethically and sustainably. This research covers a 5-10 year period for a selected sample of companies and ESG scores collected from established providers like MSCI, Sustainalytics, and Refinitiv, as well as financial metrics such as stock performance, ROE, ROA, and market capitalization.A number of machine learning models, such as regression analysis, decision trees, and neural networks are used to find the link between ESG scores and the financial results of companies. Furthermore, methods such as clustering and factor analysis are employed to classify companies by ESG performance and pinpoint the factors that are best correlated with financial resilience. The results give information as to whether high ESG scores are synonymous with steady stock performance, resilience, or even market over performance; I also show the added value of ESG analysis driven by AI through easier data processing and pattern recognition. This research takes forward the debate on sustainable investing by indicating that ESG analysis supported by artificial intelligence could be the key ingredient for an investor who is ethical and also reaps financial benefits.