AlphaPilot, our Machine Learning AI that chooses which companies to add to the index makes it selection from a reduced number of companies with high ESG score. Now, high ESG scores is subjective and different people will give different weights to different elements. This post is to give an idea on what constitutes a high ESG company, and we’ll also share which sectors are avoided. The sectors avoided are:

Alcohol
Confectionary
Gambling
Tobacco
Oil and Natural Gas

We try to have a good representation of all economic sectors, but in general we have seen that technology and services companies tend to score higher in ESG. When filtering we look for companies that treat their employees and customers right, that make significant efforts to reduce their environmental footprint, that make sure their supply chain is responsible as well, and that are transparent with their ESG metrics (meaning that they should produce a sustainability report). To give an example of a company that scores well, and is part of the WideAlpha AI-Selected Index, let’s look at Mercado Libre. It has an exceptionally high employee rating on Glassdoor, meaning employees are in general happy working for the company:

It also has good reviews from its customers, for example its PlayStore rating is 4.6, which is much higher than average.

It also publishes a sustainability report, and has an above average grade from sustainability information aggregator CSRhub:

Given all of the above Mercado Libre is added to the pool of companies from which AlphaPilot can choose to add to the index. It is important to note that the ESG criteria is only used to add the companies to the pool of options, but does not play a role on whether it is actually in the index at a given moment nor its allocation. If you have any questions about the ESG criteria used to construct the index don’t hesitate to ask in the comments below. Until next time!

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