Will satellites become the eyes of sustainable investing?
Eyes in the sky don’t lie. Indeed, during the coronavirus outbreak satellites have shown a revealing picture of plummeting levels of nitrogen dioxide, a major pollutant associated with industrial activity, in locked down economies
As investors seek more information about businesses’ environmental impacts, they have a new source: satellite imagery. A growing number of space organisations are marketing data that gives sustainable investors a clear view of not only how businesses and industries are impacting the environment, but also how environmental changes are in turn affecting them.
Just as sustainable investing becomes mainstream, so data extracted from satellite imagery is increasingly widely available. Satellites orbiting the Earth are invaluable for verifying and identifying environmental impacts, providing imagery regardless of national borders, almost in real time. Satellite data can verify and augment the environmental information in company reporting, giving a fuller picture. It can provide investors withquantitative and measurable environmental social and governance (ESG) indices that can be compared, as opposed to declarative information.
Investors can monitor companies’ activities, including: pollution, greenhouse gas emission levels and deforestation. They can use the data to monitor emissions into the atmosphere and water courses almost as soon as they happen. All the indications are that they will make more use of this data as it becomes cheaper, and easier to process, delivering meaningful insights.
Currently, the European Space Agency (ESA) is Europe’s major source of “open, on-line access” space data. Via the European Union's Earth Observation Programme called Copernicus, ESA implements a family of missions called Sentinels. Six Sentinel families of Earth observation satellites monitor the land, ocean and atmosphere, using optical, radar and super spectral imagery. However, a number of “new space” businesses are launching low-cost satellites that will reduce the cost of data. Additionally, start-up analytics businesses are turning that data into meaningful insights.
Turning information into insight
There are three general types of satellite data, also known as space data, according to Jason Maroothynaden, a business broker at ESA. Firstly, Earth observation. Secondly, communications data. And, thirdly, classification data, specifying time and location, that allows anything on the ground to be time and location stamped. Maroothynaden believes that a fusion of all three types could be most useful for investors.
« Although you have three different classifications, they could be merged into one and used for various actionable insights. That’s really the most exciting thing that’s happening in terms of space and space data. »
Turning data into meaningful insights is a fast-emerging field of investment research, with great potential for sustainable investing.
QuantCube, a Paris-based AI-powered economic intelligence start-up, analyses satellite data for investment purposes, for example by creating ESG indices, including a pollution index. Explains Alice Froidevaux, QuantCube’s lead data scientist: “Using Sentinel 2 images, you can classify every area in Europe and outside. You can even go at a more granular level and see if it is residential, commercial or industrial sites. Then, you can use higher resolution images and classify those sites between different 62 different classes: it can be a hospital, a police station, an airport, etc. “If you cross this information with Sentinel 5P satellite information, that gives you sulphur dioxide and nitrogen dioxide particles. Finally, by using wind speed and direction, you can connect a pollution cloud to a site, so you can create a key performance indicator on pollution information.” Similarly, QuantCube uses satellites to track water pollution back to its source. So it is possible to discover which site or building is polluting a watercourse or the sea.
Space data can also be used to study how climate change is likely to affect industries.
For example, QuantCube uses meteorological and oceanographic data to follow extreme climatic events that impact industries such as agriculture or infrastructure. “You can follow the different spectral bands and see the stress on different crops in agriculture,” says Froidevaux. While today analysis is done at the macro sector or geography level, analytics firms also want to focus in on the micro level by crossing satellite data with other sources such as reports, analytics, social media etc... This would create augmented data that tracks changes at the E and G levels of ESG at individual companies.
A supplementary source
Just how useful is this type of satellite data and analysis for sustainable investment strategies? At present, not many sustainable investment managers use this data, but it is a powerful source of incontrovertible evidence about environmental performance, going beyond what a company itself reports. Commodity investors have sought to get an information edge through “alternative” data for many years, using it to supplement the widely-used public sources of information. Michael Haigh, global head of commodities research at Societe Generale, believes that satellite data could be used similarly for both commodity and sustainable investing.
« I might look at satellite data to see how much a very large crude carrier is out of the water, because that tells me how much oil it’s carrying,” »
he says. “A sustainable investor could use it to monitor pollution around the vessel. It’s the same data, essentially, but used for a different purpose. So it’s quite exciting, and the more people get familiar with this, the easier it is for them to understand.
As sustainable investing gathers momentum, there is a demand for reliable data and analytics. Satellite data may prove to offer just the kind of clear, independent information needed for judging a company’s environmental performance.