Enriched Patent Data: The Secret Weapon in Powering Investment Decisions and Closing the ESG Reporting Gap
14 June 2021 12:30
ESG investing strategies have been among the most profitable in recent years. But investors find it difficult to assess companies’ claims to be following Environmental, Social and Governance (ESG) principles. Patent data has proven very effective in testing these claims and closing the ESG reporting gap.
Closing the ESG data reporting gap
Global ESG assets are expected to exceed $53 trillion by 2025 , reports the World Economic Forum. This is projected to represent more than a third of the total assets under management in the world.
Yet investors seeking to make profits and benefit society by investing in ESG funds suffer from a lack of reliable information to help them identify which companies are truly sustainable. Seven in 10 asset managers surveyed said this is their biggest challenge, according to the Financial Times. Most ESG data looks at a company’s history and cannot accurately assess their future impact on environmental, social and governance issues. Furthermore, the World Economic Forum explains, “Although the EU and US are starting to develop and adopt regulations, they are still several years away until robust ESG standards and policies are enforced in the financial sector.” Until then, investors must rely on other methods to analyze the potential of ESG assets.
This is where patent data comes in. Access to patent filings helps investors to predict the future about a given company and its products. The average time from filing a patent until it is released as a product is between two and five years. A filing about a product can indicate, for example, whether it will be powered by renewable energy or made from sustainable materials. Patents allow investors to look beyond the warm words in an annual report to discover where a company is really heading.
For example, the Y02 class of patents, which is managed by the European and US patent offices, accredits only those products which use technologies that control, reduce or prevent emissions of greenhouse gases and mitigate the adverse effects of climate change. Research in the World Patent Information journal by Angelucci, Hurtado-Albir and Volpe found that successful patents under this scheme were awarded to “technologies or applications which in the broadest sense can be considered as countering the effects of climate change”. This is a clear signal to investors looking to assess future ESG performance.
Test ESG claims with enriched patent data
Patent data is clearly useful to investors, but it is not without its complications. Patent offices around the world use different criteria for accepting patents. The volume of patent filings and awards is also staggering—350,000 were granted last year in the United States alone.
Nexis® Data as a Service can help investors to overcome these challenges. The LexisNexis® IP Data Direct-Patents (IPDD) offers access to comprehensive patent data from 100+ authorities spread over a 30+ year archive.
LexisNexis PatentSight® enriches patent data with innovation-focused Key Performance Indicators (KPIs) in key technology fields that give insights into a company’s Research & Development strategies and in turn how well they align with ESG goals. These fields are:
- Renewable energy
- Energy efficiency
- Climate change mitigation
- Sustainable consumption
- Toxic technologies
Patents are grouped according to these areas, which are based on keyword searches across high volumes of patent data and by applying AI and data analytics tools to surface insights. Users can also tailor their filters with individually customized technology fields.
LexisNexis PatentSight data is particularly useful to investors for predicting a company’s future approach to ESG. It demonstrates all patents filed by a particular company over time. It uses proprietary patent qualitative scoring metrics to help users to identify the pipeline of innovation coming from a particular company.
Alternative data is increasingly being sought by investment professionals and patents are a leading example of how previously under-used sources can form the basis of sound investing strategies. In fact, patents support investment decisions in other ways, including:
- Predicting business and product trends
- Understanding the strategies and future products of competitors
- Carrying out research and development
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