Opening the Door to Environmental, Social, and Governance (ESG) Investing for High Frequency Traders: Automated ESG Grading of Portfolios; Applications of Environmental, Social, and Governance (ESG) Goals in High-Frequency Trading (HFT)

Pemble, William, School of Engineering and Applied Science, University of Virginia
Sherriff, Mark, EN-Comp Science Dept, University of Virginia

My technical project and STS research project are closely intertwined and significantly influenced by my full-time job that I will be starting following the completion of my fourth year at UVA. My STS research project explores the high-frequency trading (HFT) industry and aims to understand how environmental, social, and governance (ESG) principles could be integrated with HFT techniques. My technical project supports this research by building a web app that would allow commercial traders, as well as retail traders, to analyze the environmental and social impacts of their trades in bulk.
As sustainable investment guided by ESG principles has grown steadily in popularity, a variety of tools have been developed to assist investors looking to consider ESG factors, but they all lack one thing: the ability to be used at scale effectively. In order to remedy this problem, my technical project is a proposal for an automated ESG grading system that would take a series of trades and compute a composite ESG score for a portfolio over a period of time. This system would be based on an algorithm that iterates through a series of trades and takes note of entrances and exits into each asset. Subsequently, the tool would query existing grading platforms for single symbols and compute a composite score for the portfolio over the time period of interest. Upon its completion, this grading system would allow traders who enter and exit many positions, including day traders and algorithmic traders, to integrate ESG investing principles into their strategies. This would be a major step towards making investing more sustainable worldwide. In the future, integrations with this tool and commonly used investing platforms like Robinhood could make it even more accessible to the public.
While my technical project addresses the lack of ESG grading at scale from a technical perspective, my STS research paper explores the possibility of integrating ESG investing principles within the HFT industry from an STS perspective. To guide my STS research, I aimed to answer the following research question: Why has the high-frequency trading industry developed to prioritize profit as its only measure of success while financial institutions like ESG funds have grown to consider alternative criteria? In doing so, I argue that due to differing time horizons between HFT and ESG investing and the challenges of realizing ESG-related impact through investing, incorporating ESG investing principles into HFT is not feasible. In order to reach this conclusion, I conducted a literature review focused on understanding the history of HFT, effects of HFT in finance and elsewhere, and the success of existing financial institutions who incorporate ESG investing techniques. Subsequently, I engaged in thorough analysis guided by the Actor-Network Theory framework to synthesize past information and convey my argument.
Conducting these projects simultaneously was of the utmost value for me. Studying STS at UVA has taught me how to consider the implications of my work as an engineer from new perspectives. Working on an STS project while planning a closely related technical project gave me the opportunity to put that newfound skill to work. While I was working on the design of my technical project, I found myself returning to the material I was learning as part of my STS project, and considered my project through a different lens as a result. For example, I spent a lot of time considering the socio-economic implications of my technical project. In doing so, I asked myself questions like: Will this technology exacerbate existing inequalities in financial markets? If so, will the ESG impact made possible by this technology outweigh these negative effects? Questions like these aren’t technical and were prompted by the thinking I was doing for my STS research paper and the lessons I’ve learned from my STS education at UVA. Had I conducted this technical project in isolation, I likely would have only considered the problem at hand from a technical perspective. While my finished product would probably still be serviceable from a technical standpoint, the value of considering the impact of new technologies through another lens cannot be overstated.

BS (Bachelor of Science)
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