Socially responsible investing (SRI) has made major inroads toward the mainstream in the past decade, but despite this more widespread acceptance, there’s still a great deal of confusion about what SRI and environmental, social and governance (ESG) are and what factors impact investment performance. Since the factors that drive clients to want to make a certain socially responsible investment exist outside of the typical investment box, it goes to reason that the factors that influence those investments’ performances may be a bit left of center as well.
Indexica—a leader in the natural language processing (NLP) alternative data space that measures what's happening in the world by quantifying events, trends and opinions in news documents using NLP and machine learning to see whether there are leading indicators that foreshadow market movements—is taking that possibility very much to heart, as it recently announced the release of a new NLP factor to be used in SRI decisions: the gender of language.
Though that description makes the company sound as if a series of buzzwords had somehow achieved sentience, Indexica’s proposed factor is actually fairly interesting. According to the company, rather than classifying words, phrases and events as positive or negative, Gender classifies words, phrases and events as either more aligned with female or male dominant linguistic patterns. Linguistically speaking, male-dominant language often includes macho talk. Female-dominant language is often softer, more caring and conscientious.
The metric takes into account the discourse around public companies in news articles. Across large textual corpus samples, according to Indexica’s research, female-dominant language lines up well with the types of events and behaviors that lead companies to receive high ESG scores from the leading researchers on the topic, who are often indexers. Male-dominant language, on the other hand often, correlates with low ESG scores. So simple.
Zak Selbert, CEO at Indexica explains, "It's still the Wild West when it comes to ESG metrics and investing. The subjective categories considered important and the inconsistent human analysis that goes into scoring is problematic and ever-evolving. Animal agriculture, for example, is barely a part of most ESG scores yet is one of the most important factors impacting our environment, health and principles. Over time, ESG models will have to move toward measuring this."