ESG scoring through digital transformation: Quantifying sustainability with machine learning

This study aims to systematically analyze the influence of Environmental, Social, and Governance (ESG) scores, particularly those attributed to subsidiaries of large firms, on the investment decisions of funds. The central objective is to examine the role that ESG scores play in shaping fund portfolios and investment strategies, especially in relation to risk management, sustainability, and long-term financial performance. The increasing importance of ESG metrics has shifted the decision-making processes of fund managers, requiring an in-depth evaluation of how companies with ESG scores are incorporated into investment portfolios. This research will explore the specific contributions of subsidiaries within larger corporate entities that possess ESG scores, investigating their role in the overall valuation of funds. By focusing on the subsidiaries, the study will highlight how the sustainability performance of individual business units influences the broader investment landscape. The significance of ESG scores for risk mitigation, alignment with sustainability objectives, and maximizing long-term returns will be central to this analysis. Furthermore, the study will assess the potential risks associated with investing in companies that lack ESG scores and examine how the absence of such scores impacts investment strategies. A key component of this research will be the examination of the decision-making criteria employed by fund managers when evaluating companies with and without ESG scores. It will explore how these scores influence portfolio composition and investment prioritization. The study will also address the broader implications for sustainability in the financial sector, particularly how ESG considerations intersect with traditional financial performance metrics. Ultimately, this research aims to provide a comprehensive understanding of the role ESG scores play in shaping the investment strategies of funds. By focusing on the subsidiaries of large firms, this study will contribute to the growing body of knowledge on ESG investing, offering insights into how these metrics affect fund performance, decision-making processes, and the long-term success of investment portfolios.