Artificial intelligence (AI) is touching almost every corner of the global economy. But what are the implications for environmental, social and governance (ESG) issues?

On the one hand, AI brings powerful potential to tackle the myriad of ESG data challenges that investors face. On the other hand, it brings investment risks around data protection, labour rights, and energy and water consumption. What do investors plan to do about AI?  

The impact of AI on ESG issues is just one of the thought-provoking issues we explore in our 2024 Global ESG Study, which gathered the views of 1,130 institutional investors and intermediaries across Europe, the Middle East, North America and Asia-Pacific[1].

Investors look to AI for help tackling ESG data challenges

Among the barriers to ESG adoption, difficulties with the consistency and reliability of ESG data have been widely cited for some time in our annual study. AI may help solve the ESG data puzzle. Although only 10% of respondents in the survey currently use AI to analyse ESG data, more than half plan to do so in the future. The potential of AI to enhance ESG data gathering and reporting is a promising development for investors seeking to improve their ESG strategies.

Areas where AI is expected to most aid ESG analysis

 

The rise of AI brings new ESG investment risks

While AI offers potential data solutions, it also introduces new ESG investment risks, in particular “S” risks.

Six out of 10 respondents in the study see the social impact of AI as the most material “S” issue over the next 12 months. More than two-thirds believe that will likely be the case over the next three years. 

Data protection and privacy, cited by three-quarters of respondents, is seen as posing the most material AI-related risk for investment. Labour rights/job displacement is viewed as another material social risk related to AI.

AI’s transformative potential is powered by high electricity consumption. It should come as no surprise that more than half of respondents view energy consumption and greenhouse gas emissions from AI as a material ESG risk in investing over the next two to three years. About a quarter of respondents point to AI-induced pollution and e-waste issues as a key risk.

Our ESG Global Study aims to shine a light on important trends among investors, and given the rise of AI, it was one of the topics we explored.  Beyond the valuable insights on AI-related issues, what hasn’t changed compared to last year is perhaps more striking. Amid political and legislative challenges, evolving regulations and elevated geopolitical risk, a vast majority of the investors surveyed remain committed to ESG.

All data attributed to Capital Group and ESG Global Study 2024 unless otherwise stated.

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[1] The survey was conducted online by CoreData Research during May and June 2024.

– Author: Jessica Ground, Global Head of ESG Capital Group

– This contribution is brought to you by Capital Group, a valued bronze event partner of Building Bridges 2024.