Alternative data: The fuel powering datadriven business decisions
ata has never been more freely available or more abundant. In fact, according to the latest statistics, an astounding 90% of all web-based data was generated in the last 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 its vital role to businesses’ survival. In our fast-moving, fast-changing market landscape, data is your always reliable resource.
Data-driven decision-making has long been an established practice in successful organizations. However, thanks to this web data explosion and the need for faster, more real-timebased decision-making, web data has moved center stage.
These days, many professionals are reducing their reliance on traditional data sources like market forecasts or earnings reports. Instead, they’re collecting up-to-the-minute alternative data from the world’s largest database – the Internet.
Why? For the simple reason that over the past year, with our market demonstrating uncertainty in more ways than one, web data has proven to be up for the challenge – it is always flexible, sharp and fast enough to reflect the real-time market adjusted to any business sector or industry space.
Verticals including e-commerce and travel have been relying on web data for several years. Meanwhile others, like the financial services sector, are just now unlocking the true power and opportunities of web data. Accessing web data, and more specifically public web data, has become part of the daily business matrix. 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 (e.g., broker forecasts, financial records, etc). This is extremely broad in scope and can include public 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 accessed using advanced data-driven technology. Banks, investment firms and other financial services have started to increasingly rely on this wealth of resources to support their decision-making and to build their financial strategies.
To make the most of web-based alt-data, consistency is key. For instance, banks looking to invest in a particular business won’t be able to accurately gauge its public image from just 24 hours of public social media data. A longer time frame and continuous reviews are required. Moreover, with the data-obesity age we are facing, it’s crucial to identify and verify the exact data parameters you wish to follow to avoid getting lost in the “noise.”
Alternative data as an ESG enabler
Businesses are also increasingly looking at alt-data for non-business data-sets. One common example for that growing need is connected to ESG (environmental, social and corporate governance) activity. Today’s financiers have realized that channeling investment into businesses that contribute toward 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 institutions’ respective reputations and attract new clients. In short, ESG is a risk mitigator and a money-maker all wrapped up in one.
In fact, almost all (88%) of financial services data leaders who participated in a joint recent survey by the leading research firm Vanson Bourne and Bright Data said their organization viewed measuring and reporting on ESG performance as either a “key metric” or “of moderate importance.” Seventy-three percent of them even said they would change business practices if they found them to be harmful to society.
To calculate and report on ESG performance scores, most businesses use their own formula. These one-and-done scores can be a helpful starting point, but they don’t give investors a comprehensive view into the short- and longterm ESG risks of investing in a particular organization. To take just one example, in some standardized ESG rankings, you will be surprised to find tobacco companies placed above those in the tech or financial services sector.
As such, many banks and financial institutions are building proprietary ESG analysis and reporting systems that are 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 keeps intensifying, so too will businesses’ dependence on it – not just in financial services but across all sectors. This means that the need to access large quantities of web data will become more frequent than ever – just like how we all access water to generate life.