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What's stopping you from including AI in your investments?



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THE ESG BOOM


Inflows into ESG funds continued to grow in 2021, exceeding total inflows in 2020.


Europe peaks at over US$3 trillion in sustainable assets in September 2021 (source Statistica) .


According to Bloomberg Intelligence, the ESG assets growth will continue to reach $50 trillion by 2025, or more than a third of total global assets under management.

But AI is not part of the ESG investment criteria

AI remains a relatively unknown topic for investors and there is no established practice on how to take into consideration AI in ESG investments.


AI is often recognized as having a material impact for various industries and companies in terms of societal, organizational, and employee impact.


But the responsible use of AI is generally not taken into consideration in the ESG investment analysis.



DIFFERENT FRAMEWORK FOR RESPONSIBLE AI


Many dimensions of responsible AI reflect companies' responsibility to themselves and their stakeholders and are therefore fundamentally linked to ESG.


Many regulators (Europe, Singapore, .) and auditing frameworks (e.g AIA, GAO, ...) are available to evaluate the governance and responsible use of AI. But the academic research on the connection between AI and ESG is still at early stage.


As a consequence, there is no one-size-fits-all solution, applicable to investments and ESG analysis.


SHAPING THE AI INVESTMENT FRAMEWORK


Investors could take the responsible use of AI into consideration in their investment, if they are more aware of AI issues, the overall impact and governance around AI.


And the financial institutions have also a card to play: they can shape their own AI investment framework.


How to make it ?


  • Step 1 - Establish a common understanding on how AI and investment can be connected

As a preliminary step, you may need to assess whether your team and investors has a good understanding of AI: the different technologies involved in automation, how it is being leveraged in key sectors, the key use cases, and the key benefits and risks of AI implementation.


Then you will need to involve various experts (being market analysts, ESG team, data scientists, AI governance) to build a common perception on how AI and investing can be linked together.



  • Step 2 - Assess AI implementation in your porfolio

The objective here is to assess how your companies are using AI, its level of maturity, and how well it can be linked to their strategy.


And this is where the complications begin.


Most of the time, the information is not available in their annual reports!


Even an inventory of all AI initiatives is not available in some global companies.


You will have to look for other sources of information: AI use cases, database, company specific application, etc. You will have to set up regular process to cumulate information on AI usage.


Based on the information collected, you will then be able to assess the importance of AI in the company:

- the AI maturity compared to the sector

- whether it is aligned with the company's values

- how it impacts the business models and the future strategy

- how it is linked to the performance of the company.


And then based on the importance, you will then decide whether or not it is useful to move on to step 3.


  • Step 3 - Perform an AI risk/opportunity analysis on the E.S.G angle


The goal is to perform an AI exposure assessment on all 3 criteria and evaluate the alignment with ESG invesments.


Specifically, assess

  • how your companies are exposed to environmental risks and opportunities related to AI

  • how your companies are exposed to social risks and opportunities related to AI

  • what governance (e.g., ethics committee) is in place to manage opportunities and mitigate risks associated with AI

And again, this information is not public.


  • Step 4 - Set up guidelines for responsible AI ESG investments

In collaboration with your ESG team, establish guidelines to incorporate AI in your ESG strategy and analyze investments in a consistent manner.



AI : UP TO 26% BOOST IN GDP


With AI expected to contribute $15.7 trillion to the global economy by 2030 (source PWC), it is an important growth driver for future.


For financial institutions and investors, AI cannot be totally excluded from any ESG investment strategy in future.


Let's start build your foundations to include Responsible AI as a core component of ESG investing

  • First make your team aware of AI and train them

  • Start collecting/assembling internal and external data on AI initiatives

  • Assess the extent to which AI is relevant from ESG perspective

  • Evaluate exposure to AI ESG opportunities and risks in your portfolio

Looking at AI from a responsible investment perspective is not common!

But given the stakes, it makes sense to start the journey now!





PS: If you need help, feel free to reach out directly to me:

Christine Laüt at SAFE AI NOW - claut@safeainow.com


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