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Quants Say They Can Make Investing More Sustainable

Data on climate risk and social issues can be spotty, but algorithms try to fill in the gaps.

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On Jan. 14, the chief executive officer of the world’s largest asset manager warned that investors had to pay attention to global environmental risks. “Climate change has become a defining factor in companies’ long-term prospects,” wrote BlackRock Inc.’s Larry Fink in a letter to CEOs. “I believe we are on the edge of a fundamental reshaping of finance.” In fact, many big investors now incorporate environmental and other social factors into their stockpicking, for at least some of their funds. But they face a real obstacle: The data is a mess.

Some companies disclose a lot of information about sustainability, labor practices, or gender equity. Others say almost nothing. A fund manager buying a few dozen large-cap U.S. stocks may be able to have analysts dig up enough corporate info to make a decision. But things get harder if you want to be able to choose from thousands of stocks, or evaluate small companies or emerging-market equities.