Data Defense in Sustainable Investing

Alternative data (alt-data) is becoming an increasingly powerful tool that investors can use to incorporate sustainability considerations – e.g., environmental, social, and governance (ESG) factors – into their decision-making. But alt-data must be used responsibly. Failure to do so can expose investors to novel forms of risk, some of which are fueled by fast-evolving technology, such as advanced machine-learning algorithms. In this paper, we explain and dissect these risks, and discuss how they create a need for investors to play data defense: that is, adopt organizational postures and processes that recognize how data can become a liability, as well as an asset to the organization. We outline the essential elements of strategies for data defense, and explore how investors can analyze their own organizations' data-related vulnerabilities. Our hope is that these insights serve as encouragement for investors to more responsibly and effectively use alt-data in their future operations – both in pursuing sustainability objectives and in general