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The Ethical Investor is Stockhead’s weekly look at ESG moves on the ASX. This week’s special guest is Tui Eruera, the founder of AI-based investing platform, Jaaims.
Nobody saw it coming, but the race is well and truly on for metaverse supremacy after Microsoft’s historic acquisition of Activision Blizzard this week.
Microsoft’s mindboggling $95 billion acquisition not only made it the world’s third biggest gaming company, but also signalled its entry into the metaverse space.
Activision, which has more than 400 million users, is best known for hit game titles like Call of Duty, Warcraft and Candy Crush. Experts unanimously agree that games and social media are today’s entry points to tomorrow’s world of the metaverse.
This space has virtually taken the world by storm after Facebook announced its rebranding to Meta. Google searches for “metaverse stock” have even increased by 17,900% compared to this time last year, according to research by IG.
Whether we like it or not, it will become part of our daily lives one way or another in the next few years.
All of the top brands from Disney to Walmart and Nike are already racing to carve out their own niche within this virtual space.
But with so much excitement, how does the metaverse actually fit in to the world of ESG investing, or vice versa?
How could the ethical investor be comfortable about investing in metaverse stocks?
Here’s a rundown of what the experts think, along with the issues that ESG investors must think about:
Climate change
There are two sides to this argument. On one side, the metaverse could reduce the world’s carbon footprint by altering individual and institutional behaviours.
As more merchants set up e-shops and corporates conduct meetings on the metaverse, there will be a reduction in carbon as we consume less materials and resources to erect physical structures. Building materials like steel and cement currently account for roughly one-third of our global greenhouse gas emissions.
The other side to the coin is that the vast increase in network traffic and data processing needed in running virtual platforms will ultimately increase electricity usage.
This, experts said, is where the adoption of renewable energy could become really crucial in the coming years as the metaverse develops.
Social equality
Experts believe the metaverse will create a more equal society.
As humans become mere digital ‘avatars’ in the virtual world, there will be less discrimination based on age, gender, skin colour, and wealth status.
Everyone could become or feel “equal” in the metaverse.
The World Economic Forum (WEF) has just released a report saying that tech companies play an absolutely critical role in building an equitable and inclusive metaverse.
The WEF says that technology has an excellent track record in helping to level the playing field in society, and the metaverse is the next chapter.
If developed properly, it could help foster the global inclusivity and exchange of ideas necessary for the future.
Mental Health
There is uncertainty on how the metaverse could impact our mental health.
According to the Stanford University’s Virtual Human Interaction Lab, the challenge is going to be when people are spending a lot of time there.
“People will be in ‘a world in which everyone is just perfect and beautiful and ideal.”
The question is, how does that affect one’s own self-esteem? Nobody knows yet.
Professor of psychology Peter Etchells from Bath Spa University believes that we’ll all inevitably become “sucked in” to a virtual world, and want to spend more of our time there than in the offline world.
“I don’t think that’s a given, but it’s nevertheless important that tech companies take a thoughtful and ethical approach to developing metaverse technologies,” says Professor Etchells.
Privacy matters
Speaking of ethical approaches, Meta (or Facebook) has this week filed hundreds of patents related to the metaverse, giving us a glimpse on how the company intends to monetise the virtual world.
According to the Financial Times which has looked into these patents, Meta could implement hyper-targeted advertising and content by creating even more personalised ads based on a user’s age, gender, and the likes and comments they leave on social media.
Another of Meta’s patents will create digital, undistinguishable replicas of people, while another will read a user’s facial expressions and adapt content around them.
In other words, Meta wants to exploit every single move, gait and gaze we make on the virtual world, and that sounds a bit scary…
Increased valuation for ESG stocks
A 2020 survey by McKinsey revealed that 83% executives and investment professionals agree that ESG programs will create shareholder value for investors over the next five years.
At the moment, metaverse stocks are not necessarily being recognised as ESG stocks, the report said.
But analysts believe that when that changes, and as people become more educated, they’ll realise metaverse companies might play an important role in reducing emissions.
Jaaims is an automated online trading application that uses artificial intelligence tech to analyse, predict and make calculated stock trades on your behalf.
The platform has recently added six new portfolios constructed by the algorithm.
What exactly does the Jaaims trading platform do for investors?
“We’re a robo advisor that’s a bit different. We use artificial intelligence (AI) based algorithm to make stock recommendations, both buy and sell. You can create your own portfolio within our application, or you can have a fully automated portfolio derived by our AI. And then we’ll buy and sell those equities on your behalf with your preferred broker.
“So it’s a no-touch, hands-off platform, you basically set the parameters of what you want to trade, and that might be ESG-related or something else.”
What ESG factors does the AI algorithm look at when deciding which stocks to buy?
“We work with Sustainalytics. They do a lot of work understanding how companies are meeting the ESG requirements. We have an API feed from Sustainalytics, where we get a huge amount of data, and rankings and ratings depending on which segment of ESG we’re looking at. Using that data, our AI algorithm then determines the top rating ESG performance companies.
“From a list of around 150 stocks, our technology then picks the best 50 ESG stocks, which are rebalanced automatically every 30 days.”
What about fundamental valuation analysis?
“Yes, the algorithm looks at current earnings, forecasts, trailing PE, and all those different ratios. Then it determines if the stock is undervalued, overvalued or neutral compared to its peers.
“We also do technical analysis, where we look at momentum, moving averages etc and determine on a technical basis if it’s a buy or sell. And the third analysis, which is really the sophisticated one, is that we analyse all the sentiment in the market, and we derive from that sentiment a trading recommendation.”
So using this algorithm, tell us some of the ESG stocks you’ve picked
“Two of the Aussie stock picks generated by our AI algorithm are Mirvac Group (ASX:MGR) and Stockland (ASX:SGP).
“Our US stock picks are Universal Health Services, Quanta Services Inc, The Kraft Heinz Company, General Electric Company, Amazon, and Coty Inc.”
Suvo Strategic Minerals (ASX:SUV) has established an independent ESG committee and appointed ESG specialist ESG+F Pty Ltd (“ESG+F”) to oversee the execution of its ESG strategy.
Suvo’s ESG framework focuses on 100 ESG metrics that are believed to be material to its industry sector.
These include climate change, responsible use of resources including energy and water, ecological footprint including biodiversity, health and safety, human rights, social supply chain and shareholder rights.
Sims Limited (ASX:SGM), a global leader in metal recycling, announced that it ranked 11th on the “2022 Global 100 list of most sustainable companies in the world.”
It was a 46-point improvement over its 2021 ranking, and marks the company’s eighth inclusion on the Global 100 list.
Uranium play Aura Energy (ASX:AEE) released a chairman’s letter in which it talks about the recently undertaken Net Zero Emission Study to form a sustainable pathway to uranium production. Results from the report are due to be announced shortly.
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