Equarius Risk Analytics Uses Smart Beta to Price Water Risk in '500' Securities
Equarius Risk Analytics, a fintech startup, deployed its waterBeta algorithm to compute volatility risk resulting from water exposures in a broad range of securities. As opposed to traditional ESG metrics, the patent-pending waterBeta model extracts financial risk from input categories such as share price information, corporate fundamentals, water intensity metrics, and text mining of disclosures and media.
ANN ARBOR, Mich., Aug. 15, 2018 /PRNewswire-PRWeb/ -- "The challenge with ESG data is that they cannot be directly translated into financial risk metrics", says Peter Adriaens, CEO of Equarius Risk Analytics and Professor of Engineering and Finance at the University of Michigan. "waterBeta takes the guesswork out of sustainability reports and provides asset managers with financial measures that can be used to build indexes, exchange traded funds (ETFs) or other instruments."
Water risk in financial portfolios is estimated to be a $145 trn AUM problem, according to ING, a multinational banking and financial services group. The market has been looking for solutions to price and manage this risk in the fixed income, public and private equity space. According to Environmental Finance, an industry blog, the sustainable indexing industry is growing at 25% CAGR.
Practitioners agree. According to Lydia Miller, Portfolio Specialist at Dana Investment Advisors, an active ESG investor, "waterBeta is a refreshing new area of practice in the sustainable investment area". Thomas Schumann Capital, an index sponsor specializing in water risk, says "waterBeta is an actionable approach for fund managers and index providers." He adds, "The model informs how portfolio asset allocations can be adjusted to drive global water security."
Up to 10 years of waterBeta values are available for '500' companies. There are telling surprises, since the highest water intensity and materiality to operations does not necessarily translate into the highest financial volatility risk resulting from water. In 2017, Industrials and IT companies exhibited the highest waterBeta values. Energy companies, as well as some US electric utilities, are in the top-10. Healthcare and pharmaceutical companies round out the top-20 of waterBeta risk. Consumer Staples companies barely crack the top-50, despite there higher water intensity. Technology companies ranged from 150th to 350th, whereas Banking and Finance exhibited marginal values.
A full report on the waterBeta method and results for '500' companies will be available later this month at http://www.equariusrisk.com.
SOURCE Equarius Risk Analytics
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