ESG – How is AI an imperative here?

“The greatest threat to our planet is the belief that someone else will save it”. – Robert Swan, Author 

There is a growing global concern about several environmental changes like pollution, climate changes, land-use patterns, biodiversity loss, water shortages, etc. Policymakers and regulators are imposing compliance on organizations to focus on to publicly disclose information about their performance in environmental, social, or governance topics. That’s why ESG, or Environmental, Social, and Governance, has gained significant attention in recent years. This refers to the three pillars of sustainable and responsible investing, which focus on the long-term viability, sustainability, and ethical impact of investments. The environmental aspect of ESG focuses on a company’s impact on the natural world, including carbon emissions, waste management, and resource usage. Social factors consider the treatment of employees, diversity and inclusion, and community engagement. Governance looks at a company’s leadership, transparency, and accountability. 

There is also a growing body of research showing the financial benefits of ESG investing. A recent study by the UN Principles for Responsible Investment found that companies with strong ESG practices tend to outperform their peers in the long-term. This is because these companies are better positioned to adapt to changing market conditions and avoid reputational damage. Such is the focus on ESG related investments that it is on path to constitute staggering 21.5% of total global Assets and Management in less than 5 years. 

AI in ESG simplified 

Businesses can leverage digital technologies to create transformational solutions for addressing ESG issues and one of those technologies is artificial intelligence (AI). One of the main ways AI can help businesses with ESG is by providing actionable insights. By analyzing large volumes of data, AI algorithms can provide businesses with valuable information about their own operations and the impact they are having on the environment and society. For example, AI can be used to monitor a company’s carbon emissions and help identify areas where reductions can be made. It can also be used to analyze supply chains and identify potential social and ethical issues. 

Another way that AI can help businesses with ESG is by automating processes and tasks. Many of the processes and tasks involved in addressing ESG issues are repetitive and time-consuming, and AI can help to automate these tasks, freeing up time and resources for other activities. For example, AI can be used to automate the tracking and reporting of a company’s carbon emissions, allowing employees to focus on other tasks. 

AI can also be used to help businesses engage with stakeholders on ESG issues. Stakeholders, such as investors, employees, and customers, are increasingly interested in companies’ ESG performance, and AI can help businesses to communicate with these stakeholders and provide them with the information they need. For example, AI can be used to create personalized communications and engage with stakeholders on social media, providing them with the information they need to make informed decisions.

In addition to these benefits, AI can also help businesses to comply with ESG regulations and standards. As governments and regulatory bodies around the world have started adopting stricter ESG regulations, businesses need to ensure that they are compliant. It is heartening to note that almost 90 percent of S&P 500 companies publish ESG report in one shape or another. Clearly AI is helping businesses to monitor their operations and identify areas where they may be non-compliant, allowing them to take corrective action.

Rajiv Singh Chief Technology Officer
Sopra Steria India

Furthermore, AI can help improve transparency and accountability in the ESG space. By providing access to data and information in real-time, AI can help organizations and governments be more transparent about their ESG performance. This can help stakeholders, such as investors and consumers, make more informed decisions about the companies and organizations they engage with. 

In summary, AI has the potential to greatly improve the field of ESG investing. It is then not a surprise that ESG focused investments are set to soar by 84% to USD 33 trillion by 2026. By automating the process of collecting and analyzing data, AI can help investors make more informed decisions about which companies to invest in. It can also help identify businesses that are likely to outperform their peers in terms of ESG performance and monitor the performance of investments over time. In doing so, AI can help investors achieve both financial returns and a positive impact on society and the environment.

Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members

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