The ESG benefits and risks of AI

AI is a powerful and rapidly developing tool that, when used appropriately, can aid a company's ESG performance and reporting.

However, careful consideration and mitigation strategies are essential for addressing a series of significant risks and ensuring responsible development and implementation.

What are the potential benefits of AI for ESG?

AI is an extremely broad concept with a growing list of applications, from chatbots, content creation and editing, text checkers and rephrasing tools, cybersecurity, data processing, process and task automation, and report creation.

These functions can provide major benefits for improving ESG performance and reporting.

Environmental

• Climate risk management: AI can analyse complex climate datasets to predict environmental impacts and provide insights to help you optimise operations.
• Resource efficiency optimisation: AI tools can be used to analyse an organisation’s energy consumption and suggest practical optimisations to reduce waste and improve resource efficiency.
• New material and process development: AI can also be deployed to assist in the development of new materials, technologies, and processes for tackling environmental issues.

Social

• Analysis of hiring practices: AI tools may be able to assist in promoting diversity and inclusion in the workforce. They can analyse hiring practices and even flag potential biases that human users miss.
• Improving workplace safety: AI tools may reduce the level of human input required for hazardous tasks, thereby reducing potential workplace injuries.
• Measuring and reporting on social impact: AI can analyse data to track the social impact of a company's initiatives and measure their effectiveness.

Governance

• Risk management: AI can assist organisations in identifying, predicting, and prioritising risks related to ESG and their wider business governance.
• Compliance: AI can track changes in ESG regulations across different regions and industries. It can also automate certain compliance tasks.
• Reporting: AI can gather data on environmental impact, social responsibility practices, and governance structures from various sources within the company, streamlining the data collection process.

What are the risks of AI for ESG?

While AI tools have tremendous potential for enhancing ESG efforts, any company exploring AI for this purpose must be aware of some very significant risks. If used irresponsibly or ineffectively, AI can actively undermine ESG activities.

Potential for bias

AI is often trained on vast swatches of existing information. This information may (and often will be) inaccurate and affected by bias. By generating outputs informed by biased data, AI algorithms are liable to perpetuate existing societal biases, which can lead to discriminatory practices in areas like hiring or credit approvals.

Job displacement risk

Organisations must carefully balance their use of AI with its social impact. The potential for AI to displace jobs is a major social concern in the wider conversation about its impact on society. Automation can cause redundancies in certain sectors, particularly those involving repetitive tasks or tasks requiring data analysis.

Environmental impact of AI tools

AI tools are highly sophisticated and require immense computational power to process massive data sets. AI drives significant energy consumption, carbon emissions, water usage, and e-waste generation. While efforts are being made to develop more energy-efficient AI models, it is important to consider the environmental risks of AI in the meantime.

Transparency concerns

Transparency is one of the key tenets of good governance. AI algorithms typically function by accepting inputs and delivering outputs, but their inner workings can be a mystery. This lack of transparency can be harmful to ESG efforts. For example, AI outputs can lack explainability (with less rationale provided for decisions). They may also include societal biases and can make it difficult to assign proper accountability.

AI and ESG – a force for good?

AI and its wider adoption are still in their infancy, and we are perhaps still in an era where it raises more questions than answers. This can create significant ESG issues despite its clear potential for making a positive impact.

More work is needed to address AI's environmental footprint, responsible implementation strategies, and transparency issues; however, it is clear that appropriately implemented AI can be a powerful tool for businesses to become more sustainable, socially responsible, and accountable.