21 October, 2020

Spatial finance with Google Earth Engine: A new frontier

Sustainable investments are a priority for public and private investors. Spatial finance is the combination of geospatial data and analysis into finance theory and practice, and is used by investment portfolio management teams to make smarter financial and sustainable decisions around their assets. 

There are four main classes of investments: cash, equities, fixed interest and property. Where spatial finance shows it’s value is in property. Property investors want to understand the environmental liabilities and risks involved when taking on and managing assets in their portfolios.

As Earth Observation (EO) technology becomes more accessible, more frequent and higher in resolution, investors are turning to spatial technology to remotely manage and assess their property investments. 

With more data captured than ever before, and a need to process this quickly to gain insights for decision making, Google Earth Engine (GEE) provides businesses with the ability to process petabytes of geospatial data and satellite imagery, in a matter of minutes, as opposed to what used to take of days.

To understand the use of spatial finance in managing a property assets portfolio, let’s look at the growth of sustainable investing in financial practices and the ways spatial finance can be applied.

EO for supporting the growth of sustainable investing in financial practices

Socially conscious investors screen their assets and have policies in place, commonly known as the environmental, social and governance (ESG) criteria, to understand the sustainable and societal impact of an investment. 

The ESG criteria is a standard, used alongside financial investment metrics, to help determine the success of an investment. According to investment platform, Spaceship, businesses are likely to perform better when they prioritise environmental impact and employee satisfaction over profitability.

Over 90% of global public investors now have specific ESG investment policies in place, or are in the process of developing them, according to a new survey from BNY Mellon and the Official Monetary and Financial Institutions Forum (OMFIF), in a chapter of the Global Public Investor. 

Through the use of EO technology, such as GEE, responsible investment managers can monitor assets remotely and understand how environmental and societal liabilities stack up against profitability margins. This gives investors the power to place pressure on businesses, or sell off assets, to build a portfolio that aligns with their ESG goals.

What are some ways spatial finance is applied to gain a competitive advantage?

It’s important to understand that spatial finance is mostly used for organisations to gain a competitive advantage. Therefore, information on how EO technology is applied in the financial sector to inform investors is limited so that competitive advantage is protected. 

Here are three application of how institutional investors can utilise spatial finance practices:

  • Due diligence for purchases and acquisitions - EO as an assessment tool. 

There is often a courting period between two companies when exchanging assets. Organisations assess and weigh up the sale value of a property against their liabilities. Similarly, investors need to mitigate investment risks prior to taking on this asset.

Through archives of satellite imagery offered in GEE, businesses and investors can analyse the history of an asset such as closure liabilities of a mine site, crop rotations and yield of a farming enterprise or flood history of an infrastructure asset. 

  • Monitoring industrial activities and throughput 

Satellite imagery providers, such as Planet, enable investors to monitor economic activity to understand how and where the market is moving. Examples of this include the monitoring of commodity stockpiles at ports, ship movements and crop yield predictions.

Investors and businesses can gain a competitive advantage by understanding how supply and demand is changing in the market and the impact this will have on pricing. 

An example of this is within the agriculture industry. Predictive analysis using tools such as GEE can help guide trading decisions through understanding the total areas of crops grown globally and predicting crop yield.

  • Supply chain transparency

Large businesses, and their investors, increasingly focus on managing their supply chain to remove suppliers that don’t align with their ESG criteria. An example of this is monitoring deforestation in palm oil production supply chains that occurs in parts of the world where many large businesses source manufacturing inputs from.

Mapping supply chains that operate across hundreds of businesses and locations requires satellite remote sensing to understand what is happening on the ground. Remote sensing practices can help identify where raw materials, such as palm oil, rubber and wood, are coming from across the supply chain network.

Companies can then use commercial leverage to manage parts of the supply chain that conflict with business values, at a local business or farm level.

How can my business leverage spatial finance?

Businesses are beginning to realise the benefits of spatial finance to make better decisions about their investments portfolios. However, it comes down to the use case and the types of assets you invest in or want to invest in. 

The practice of spatial finance is growing, but due to the competitive nature of financial institutions, it’s unlikely we will ever see the true impact of applying this technology in business. The value of unique insights is maintaining their uniqueness solely to your business. If everyone has the same intelligence as you do, it no longer gives you a competitive advantage. 

Are you working for an organisation that wants to explore using Earth Observations technology to make more informed business decisions? Our team can help get you started - get in touch with us here.  

You can also check out our podcast episode where we take a deep dive into the world of spatial finance

Listen here

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