How big a role will AI play in ESG?
With the growing global significance of ESG, we are currently seeing a paradigm shift in what key stakeholders expect of a company
Canadian sustainability management software company Novisto recently wrote, for example, that “beyond the mandatory set of financial disclosures, they now require companies to produce disclosures (currently not mandatory) related to the issues that underpin the consumption and creation of tangible and intangible resources–namely the ESG aspects of the business. “
The growing global significance of ESG, or Environmental, Social and Governance has seen a steady rise over the past few years. A quick search on Google trends reveals the boom came in around 2019, concurrent with major ongoing movements highlighting global climate change concerns. Today, it is estimated that over $40 trillion, or 25% of all professionally managed assets globally have “some level of environmental, social and governance (ESG) theme overlay in the investment process.”
In spite of this trend still being in its infancy in India, it is becoming increasingly important for investors in local equity markets, with “this number and percentage of assets only expected to grow in 2022 and beyond”, according to senior lecturer of business administration at the Harvard Business School, Vikram Gandhi.
PricewaterhouseCooper opines, in this regard, however, that “ESG is more than ticking boxes. It’s about making a difference (…) and creating sustained outcomes that drive value and fuel growth, whilst strengthening our environment and societies.”
A recent report from London-based GRC World Forums spoke about how “a new white paper published in China revealed the decisive role that artificial intelligence (AI) may play in promoting improvements in environmental social governance (ESG) initiatives, and the achievement of “dual carbon” goals.”
The publication comes from Chinese tech giant Baidu, who estimate that by 2060, AI-based technologies may be instrumental towards reducing carbon emissions by over almost 35 billion tons. It is, in fact, the first industrial research report from China solely focusing on the use of AI in achieving China’s carbon neutrality and carbon peaking goals.
According to the research, technology shall be the driver to complete carbon neutrality, with AI set to come in especially handy in industries through carbon reduction technologies and ICT infrastructure. AI penetration in ESG is set to be up to 70% by 2060.
On the ‘how’
Baidu is currently drawing on its AI expertise to realise a complete smart-transportation system with aspects such as autonomous driving and vehicle-to-everything, with carbon reduction as one of the primary agendas. To this end, Guobin Shang, VP and GM of Intelligent Transportation Division at Baidu, recently opined:
“One of the key advantages of smart transportation solutions is the ability of ‘vehicle-road-smart mobility’ to address the issue of emissions at the root. By 2030, Baidu is expected to reduce carbon emissions from urban transport by more than 70 million tons, equal to 8 percent of China’s total emissions in 2020.”
Artificial intelligence can prove to be extremely beneficial in handling the added complexities that are set to arise from the large volumes of data that now need to be processed and assimilated. Given that data types are set to be varied and source information heterogeneous (as a streamlined set of corporate sustainability guidelines and reporting standards is yet to be finalised), AI can prove to be rather beneficial in supporting analysts to find and process these disparate and complex datasets.
Secondly, Novisto writes, AI comes in “to improve companies’ ability – through software platform tools – to generate insights into either the quality of their data or the strength of their performance in managing key ESG issues.”
It’s exactly as PwC says: “ESG is more than good intentions. It’s about creating a tangible, practical plan that achieves real results. Success is not about climate change, diversity and disclosures alone. It’s about embedding these principles – and more across your business – from investment to sustainable innovation.”
And, at this, probably nothing will help more than AI.
