Artificial intelligence (AI) has the potential to revolutionize environmental, social and governance (ESG) practices, offering innovative solutions and insights that can help businesses operate more sustainably, ethically and transparently. As corporations face increasing pressure from stakeholders to improve their ESG performance, AI has emerged as a powerful tool to help address these challenges.
The use of AI to improve ESG performance has been driven by the explosion in the availability of generative AI, such as OpenAI’s ChatGPT, which reached 100 million active users within a month of its launch in November 2022, and has more than 1.5 billion users just a year later. Since generative AI became widely available, there has been an intense debate worldwide over whether and how AI should be regulated.
On Oct. 30, President Joe Biden issued Executive Order 14110 on Safe, Secure, and Trustworthy Artificial Intelligence that builds on the administration’s 2022 Blueprint for an AI Bill of Rights and the National Institute of Standards and Technology’s (NIST) Artificial Intelligence Risk Management Framework. This new executive order directs more than 50 federal entities to engage in specific actions to implement the guidance across eight overarching policy areas.
The new executive order aims to “thread the needle between harnessing the power of AI to spur innovation and mitigating the significant potential risks associated with AI technology.” This executive order is one of a number of efforts underway “to regulate this technology worldwide against perceived risks related to data privacy, disinformation, inequality, and discrimination.”
Earlier this year we provided an overview of how AI and blockchain were being applied to identify and mitigate ESG risks, improve efficiency, and enhance stakeholder engagement; and highlighted a handful of the risks posed by their use and the nascent efforts then underway to regulate AI. Given the increasing use of AI for a variety of ESG related purposes and the evolving worldwide momentum toward regulation, a deeper dive into the potential benefits and risks of using AI to enhance ESG performance is warranted, along with suggested action items and best practices to facilitate successful integration of AI into ESG practices.
1. How AI Can Enhance ESG Performance
There are many ways AI is being used in each aspect of ESG. The breadth of these applications underscores the significant potential AI has to advance ethical, sustainable and socially responsible practices, and offer innovative solutions to complex challenges.
The integration of AI into ESG practices not only offers groundbreaking opportunities, but also brings with it a set of critical risks that cannot be overlooked, particularly in light of the recent movement toward regulation of AI globally. President Biden’s executive order has focused attention in the U.S. on potential risks arising from data privacy, disinformation, inequality, bias, and discrimination – issues that all fall under the ESG umbrella.
Bias and Inequality Concerns
Data Privacy, Security, Transparency, and Accountability Issues
Overreliance on AI, Error and Reliability Issues, and Unintended Consequences
Integrating AI into ESG strategies effectively while mitigating risks requires a comprehensive and strategic approach that balances technology with human judgment and decision-making. Here are some action items and best practices:
Stakeholder Engagement, Communication, and Reporting
The integration of AI into ESG practices offers myriad benefits, ranging from enhanced environmental sustainability to improved social responsibility and governance practices. AI’s ability to process complex data, predict trends, and offer actionable insights plays a pivotal role in driving ESG performance. By harnessing AI’s capabilities, companies can not only comply with regulatory requirements but also innovate and lead in sustainable and ethical business practices.
At the same time, adapting AI to improve ESG performance presents a unique blend of challenges for businesses – and many of these risks are in the public eye following the October executive order. The risks and complexities that come with leveraging AI for ESG underline the importance of strategic foresight, comprehensive planning, prudent management and ethical oversight in capitalizing on the opportunities AI presents while mitigating its risks.
AI should be viewed as a complement to, rather than a substitute for, human judgment and decision-making. The successful integration of AI into ESG practices hinges on a synergistic relationship between technology and human insight, in which AI acts as an enabler of or catalyst for more informed, ethical, and sustainable business decisions. Implementing best practices and action items to achieve this balanced approach will help position companies not only to meet the current ESG standards but also to be adaptable and resilient in the face of future challenges and advancements in AI technology.
