ESG made easier: Artificial intelligence cuts through the clutter in sustainable investing

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Douglas Chow may not be a household name for Canadian wealth managers, but his resume is likely to catch their attention.

Chow is a veteran technology investor who worked for Fidelity Investments and BlackRock before embarking on his own two years ago to found PortageBay, which provides industry-leading software for ESG (environmental, social and governance) investing.

We talked with Chow, who grew up in Toronto, about why he launched PortageBay and how his company leverages big data and artificial intelligence (AI) to help family offices and other wealth managers make portfolio decisions that are good for the world and, equally important, increase their profitability at the same time.

What path led you launch PortageBay and develop ESG-specialized software?

I was an electrical engineer by training, specializing in computer engineering. But coming out of undergrad, I went into banking. This was during the tech bubble, and so I really wanted to get back into tech. I then went to Stanford for my MBA and became a tech investor, eventually at Fidelity where I ran a $12 billion fund.

Because of my tech background, Fidelity asked me to launch its unit for big data and AI in 2012. That eventually led BlackRock to recruit me in 2016 to focus on one aspect of AI investing: how to scale up human insight so active managers can make better decisions. We all know research shows they generally aren’t very good at this. But the work we did at BlackRock ultimately helped with the turnaround of its active investing unit, with performance of its managers improving.

At the same time, ESG investing was growing in importance, and I was increasingly concerned about problems with the quality of data. There was so much BS out there, with so-called great ESG companies backed by really questionable data.

What’s more, the most accurate analysis tools were only in the hands the few. So I and a few other colleagues saw this great opportunity to democratize quality ESG analysis not only for the big institutional investors but for everyone, including family offices. That’s why we created PortageBay.

How does your software work?

It offers capabilities that a company like BlackRock would have. It scales up the human insight so you can identify companies with truly good ESG metrics.

The challenge is bringing all that ESG data together in a meaningful and useful way. To do that our software pores over more than 200,000 websites in 100 countries in 65 different languages in real-time to uncover impactful data on more than 10,000 companies. That’s about 96 per cent of all developed-market companies.

Then we take all that raw ESG data and map it back to globally accepted sustainability standards to provide accurate benchmarking on about 600 metrics to create apples-to-apples comparisons.

How does AI play a key role?

Because we’re constantly scraping all these websites for pertinent data, we’re able to help investors spot potential problems with a company they wouldn’t find otherwise. If a mine explodes in a small town in Brazil, our system will find that. So that’s the first part of where AI is helpful.

The second is we can then show which companies do better on very specific ESG metrics. But our software algorithm can also forecast how, if they improve their performance with these metrics, the probability of their stock price increasing is X.

The third AI piece is really the magic of what we do, where we scale up human insight. Our software learns, for example, that you want to invest in companies involved in a certain aspect of renewable energy. So, similar to how Netflix’s algorithm learns your viewing preferences, ours finds you similar companies you might want to invest in.

Why is this software useful for family offices?

A lot of family offices allocate capital in the portfolio toward doing good, but they want to generate a good return as well. We help them figure out how to do that by finding the best ESG companies with a better, wider net. This is really helpful because many family offices don’t have the resources to analyze thousands of companies. But using our AI, their reach increases dramatically where they can now quickly see accurate, reliable ESG scoring for thousands of companies.

But it’s more than ESG scoring. They can also see how firms score on the United Nations’ Sustainable Development Goals for impact investing needs. So for the goal of providing affordable, clean energy for all, our software can find all the companies meaningfully moving the needle in that area.

You worked outside Canada for many years, including Hong Kong most recently. Why did you choose to launch PortageBay in Toronto?

I grew up in Toronto, so returning here was a natural fit. The other thing is Canada is a leader in sustainable investing, with our pension funds among the first to make ESG a critical part of their investment processes. So in many ways Canadians have been thinking about this for a lot longer than other countries.

The other thing, particularly with Toronto, is talent with AI — we have universities here producing some of the best grads in the field. So it was a very easy decision to move our headquarters here and come home again.

What has been the reception since launching in 2021?

Demand has been off the charts, even though we’re not well-known yet. We already have some very big customers, including a top Canadian bank, one of the largest investment banks in the U.S. and a huge French bank. We are also working with a few family offices, including one managing tens of billons of dollars.

That’s really our bread and butter, family offices. Would I love this to be in the hands of all investors? You bet, but what really matters is investment capital that our clients are deploying for ESG needs is put to good use for the planet and their bottom line.

This interview has been edited and condensed.