ESG & Artificial Intelligence
The artificial intelligence (‘AI’) revolution has led to significant disruptions across multiple industries, from expediting internal processes to creating efficiencies in handling vast quantities of data.
However, the emergence of this exciting new technology has bought forth a multitude of ESG-related challenges and opportunities for investors and businesses. In response, stakeholders are calling for the formulation of comprehensive guidelines and analysis to help navigate this dynamic landscape.
In the Law:
Regulatory bodies are harnessing the power of AI to enhance their ability to monitor financial markets for ESG risks. This is particularly relevant as AI capabilities are leveraged to identify companies who are not compliant with ESG regulations.
However, a significant challenge has emerged with the rapid development of AI technology outpacing the establishment of comprehensive regulations and standardised controls. To effectively address this challenge, it is important that ESG risks are adequately considered in the development and application of AI systems, and critical frameworks such as regulated rules and guidelines are necessary to managing these issues.
In the Company Boardroom:
While companies in the technology sector are more likely to incorporate AI into their products and operations, many other sectors are also embracing this technology and being materially impacted by AI advancements.
Concerns regarding public trust, social license to operate, and bias are particularly relevant for companies operating in sectors that directly engage with customers or communities, such as financials, health care, and consumer services.
On the other hand, for industries such as materials and communications, AI is likely to present opportunities related to worker safety and optimisation. For example, BHP’s implementation of AI-powered smart caps within Chilean copper mines has resulted in a 70% reduction in both the frequency and severity of costly and dangerous hazards. We are likely to see many more compelling examples come to light as this technology rolls out on a global scale.
In the Investment Houses:
AI is also being utilised by investment houses to identify sustainable investment opportunities by leveraging its capacity to screen companies based on ESG criteria. These criteria may encompass various factors, including low carbon emissions or strong labour practices.
However, it is important to acknowledge the potential risks associated with a lack of reliability and accountability regarding AI-generated information. This reinforces the need to establish well-defined responsible AI frameworks to ensure that decisions are made in a transparent and explained manner.
Our View:
AI is a powerful tool that possesses significant potential for improving ESG practices. However, it is important to acknowledge the inherent risks involved to proactively address, mitigate and reduce their impact.
Companies will need to adopt a multifaceted approach to AI integration to harness its potential while safeguarding against its risks. This entails establishing and implementing effective policies and systems from the outset, and crafting a comprehensive strategy that takes into consideration responsible development and oversight.
For additional information on this important topic or ESG assistance, contact us today at info@anabranchesg.com.au
