Alternative data: the fuel powering data-driven business decisions

Data has nev­er been more freely avail­able or more abun­dant. In fact, accord­ing to research by IBM, an astound­ing 90% of all web data was gen­er­at­ed in the pre­ced­ing two years. The truth is that data is not the ‘new oil’ as is often claimed. Instead, it’s more like water. This is due to its sheer vol­ume and because its avail­abil­i­ty is fast becom­ing cru­cial to the sur­vival of busi­ness­es and organ­i­sa­tions world­wide.

Data-dri­ven deci­sion-mak­ing has long been an estab­lished prac­tise in suc­cess­ful organ­i­sa­tions. How­ev­er, thanks to this pub­lic web data explo­sion, many are reduc­ing their reliance on tra­di­tion­al data sources like mar­ket fore­casts or earn­ings reports. Instead, they’re access­ing up-to-the-minute alter­na­tive data from the world’s largest data­base – the inter­net.

Sec­tors includ­ing ecom­merce and trav­el have been rely­ing on web data for sev­er­al years. Mean­while oth­ers, such as finan­cial ser­vices, are just now har­ness­ing the pow­er of web data, and tap­ping into it as part of their day-to-day activ­i­ties. Why? For the sim­ple rea­son that access­ing pub­lic data enables fast, accu­rate deci­sion-mak­ing – a neces­si­ty for many busi­ness­es nav­i­gat­ing the rapid mar­ket shifts that have become our real­i­ty.

What is alternative data?

In the con­text of finan­cial ser­vices, alter­na­tive data – also known as alt-data – refers to infor­ma­tion that doesn’t come from tra­di­tion­al sources (for exam­ple Com­pa­nies House, bro­ker fore­casts or finan­cial records). This is extreme­ly broad in scope and can include social media posts (used to mea­sure con­sumer sen­ti­ment), satel­lite imagery (to detect foot­fall), weath­er reports (to pre­dict the like­li­hood of extreme weath­er events), and so on.
A huge quan­ti­ty of alt-data is pub­licly avail­able across the inter­net and can be retrieved using for­ward-think­ing data-dri­ven tech­nol­o­gy and tools. Financiers are increas­ing­ly rely­ing upon these to sup­port their deci­sion-mak­ing and strate­gic plan­ning.

To make the most of web-based alt-data, con­sis­ten­cy is key. For instance, a bank look­ing to invest in a par­tic­u­lar busi­ness won’t be able to accu­rate­ly gauge its pub­lic image from just 24 hours of social media data — a longer-term approach is need­ed. Plus, with enor­mous amounts of data being gen­er­at­ed online, it’s cru­cial to set up exact­ing para­me­ters for data col­lec­tion to avoid get­ting lost in the noise.

Alternative data as an ESG enabler

One grow­ing use of alt-data is in the finan­cial ser­vices sec­tor, where it is increas­ing­ly used to eval­u­ate the envi­ron­men­tal, social, and cor­po­rate gov­er­nance (ESG) cre­den­tials of busi­ness­es In fact, the major­i­ty (88%) of finan­cial ser­vices data lead­ers who par­tic­i­pat­ed in a 2021 sur­vey said that their organ­i­sa­tion viewed mea­sur­ing and report­ing on ESG per­for­mance as either a ‘key met­ric’ or ‘of mod­er­ate impor­tance’.

Today’s financiers have realised that chan­nelling invest­ment into busi­ness­es that con­tribute towards pos­i­tive change in the world is not only moral­ly good but can help to ensure the long-term per­for­mance of their invest­ments. Doing so can also mit­i­gate risk, boost their insti­tu­tion­al rep­u­ta­tion and attract new clients. In short, ESG is a mon­ey mak­er.

There are many ESG rat­ings providers out there. Most use their own unique for­mu­la to cal­cu­late a sin­gle ESG score. These one-and-done scores can be a help­ful start­ing point, but they don’t give investors a com­pre­hen­sive view into the ESG risks of invest­ing in a par­tic­u­lar organ­i­sa­tion. To take just one exam­ple, some stan­dard­ised ESG rank­ings place tobac­co com­pa­nies above large tech or finan­cial ser­vices busi­ness­es. This is a one-sided assess­ment, to say the least.

As such, many banks and finan­cial insti­tu­tions are build­ing pro­pri­etary ESG analy­sis and report­ing sys­tems, pow­ered by web data tools. These enable financiers to deter­mine which ESG fac­tors they con­sid­er most impor­tant, and how they are weight­ed.

Look­ing for­ward, as the speed with which data is gen­er­at­ed inten­si­fies, so too will busi­ness­es’ depen­dence on it – not just in finan­cial ser­vices but across all sec­tors. As more busi­ness­es seek to access web data, this excit­ing new infor­ma­tion source will no doubt con­tin­ue to shape how the world does busi­ness through the next decade.

For more infor­ma­tion please vis­it brightdata.com

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