The Ethical Investor: AI can tackle climate change, boost ESG - but we need to talk about risk

AI can significantly aid in tracking climate change effects
AI can also combat the anti-ESG backlash by enhancing ESG assessments
But despite its benefits, AI poses ethical concerns

Artificial Intelligence (AI) has the potential to be the ultimate multitasker, sorting through massive data piles and giving humans a hand in solving global problems and making big calls.

When it comes to fighting climate change, AI could be a game-changer too.

AI has been trained to measure changes in icebergs 10,000 times faster than a human could do it.

This will assist scientists in grasping the extent to which icebergs are contributing meltwater to the ocean, a phenomenon that’s speeding up due to the warming effects of climate change.

On land, AI is being used to map the impact of deforestation in various regions, measuring deforestation rates and how much carbon is stored in a forest.

In Africa, AI is being deployed in a United Nations project to help communities vulnerable to climate change.

This includes making it easier for Africans to use clean energy, setting up good waste management systems, and encouraging more trees to be planted.

Elsewhere, AI is mapping out all the trash floating around in far-flung spots in the ocean. This enables a far more efficient way than sending out trawlers and planes to scoop it all up.

In the future, generative AI could even be used in endeavours such as drug discovery and design, architecture and engineering.

Can AI stop ESG backlash?

Some also believe that AI will help to stop the recent anti-ESG backlash, which is causing a stir in the responsible investing space and has raised a very pressing question: How much longer will investors keep ESG funds on their radar?

This backlash has not only drawn widespread public attention, but also exacerbated a growing divide across the Atlantic.

While investment firms in the EU are all about bragging rights for how fast they’re slashing greenhouse gases to zero, over in the US, firms are either mostly ignoring the problem or saying they have to focus on what their clients want first.

“ESG has become a lightning rod for controversy, particularly in the US where Republican lawmakers, among others, have framed it as ‘woke capitalism,’ at odds with traditional investment principles,” said de Vere Group’s Nigel Green.

“The resultant backlash, including blacklisting of major financial groups and legislative restrictions in certain states, underscores the urgent need for a re-evaluation of ESG frameworks.”

But Green believes AI can revolutionise ESG assessment by using its amazing skills in data analysis, pattern recognition, and predictive modelling.

One specific application lies in Natural Language Processing (NLP) algorithms, which can sift through vast amounts of textual data from corporate reports, news articles, social media, and regulatory filings.

“By discerning nuanced signals of ESG-related risks and opportunities, AI-driven platforms provide investors with holistic insights into a company’s sustainability performance,” he said.

“Ultimately, AI will be the foot on the brake of the anti-ESG backlash,” said Green.

Revolutionising how fundies assess ESG

In addition, AI-powered predictive analytics can help investors spot ESG market trends and uncover new risks and opportunities before they happen.

“By incorporating real-time data feeds and sentiment analysis, AI empowers investors to make informed decisions that drive positive societal and environmental outcomes while delivering competitive financial returns,” Green said.

Similarly, AI-driven analytics can evaluate how well companies are doing in terms of their contributions to society when it comes to social impact investing.

By looking at data generated by AI for example, investors can get a good sense of companies’ diversity and inclusion efforts, labor practices, and community involvement.

“Through AI-enabled social network analytics, investors can identify opportunities to promote social equity and foster inclusive economic growth,” said Green.

Also with AI tools becoming more accessible, many fund managers reckon it will get easier to quickly evaluate more companies on an ongoing basis.

While a human analyst might be better at evaluating a dozen companies, an AI algorithm will be way more efficient when it comes to analysing thousands of companies.

The downside of AI

But as AI becomes more widespread, we need to dig deeper about the ethical side of things and what it means for sustainability.

To give an example, while the future benefits of autonomous driver-less cars are obvious, what’s not been widely discussed is their environmental downside.

Since automation makes car travel super easy, people might feel the urge to take more trips, and commuters might not mind living farther from work if they can relax while the car drives.

One other sustainability concern with AI is that it could hit workers who do repetitive jobs pretty hard, with some seeing their wages drop by as much as 70% because of automation.

Office workers haven’t felt the pinch as much — at least not yet. But with generative AI on the rise, even office gigs aren’t safe from job cuts or lower pay.

Another downside of AI is that it might make ethics and goodwill less important.

In his World Day of Peace message in December last year, Pope Francis warned that AI might be used the wrong way, and that it could make statements that seem true but are actually made up or biased.

He said this could make fake news campaigns stronger, make people trust the media less, mess with elections, and cause more conflicts, making it harder to keep the peace.

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