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AI applications: panacea or threat to sustainable development and ESG assessments?

June 2, 2023
AI applications: panacea or threat to sustainable development and ESG assessments?

Artificial intelligence (AI) and its applications are evolving at a rapid pace and are increasingly penetrating our everyday lives.

From the arcade games of the 90s, we have moved on to smart phones that feature both data and AI applications, such as Google Assistant and Siri. Today we are all talking about AI applications, which seem to have initiated the process of changing or disrupting balances and norms in key areas, such as in investments, risk assessment and even fraud prevention in transactions.

According to Forbes, 70% of financial companies are already using artificial intelligence to predict issues related to credit risk forecasting and detect fraud. Especially on the issue of consumer fraud, JPMorgan Chase is already using fraud detection applications. Specifically, through an algorithm it sends details of credit card transactions to data centers, which then determine whether it is fraud or not.

AI and sustainable development

Of course, such a revolutionary tool could not ignore the most pressing issue of the 21st century; that of climate change and sustainable development. AI is already playing an important role in the evaluation of environmental, social and governance (ESG) practices and initiatives, through which rating agencies and investors assess the sustainability and financial risk of companies.

Traditionally, rating agencies, such as Moody’s for example, that focus on environmental, social responsibility and governance (ESG) issues, have relied on analysts to identify and evaluate data. However, in order to effectively deal with huge volumes of data that can be material to ESG investing, they are now using computational algorithms that can automate complex tasks and analyse information at rapid speed. For example, RepRisk uses the media as sources of information, taking into account corporate announcements and other news for ESG assessment, while other platforms use data from Sustainability Reports.

In particular, artificial intelligence (AI) applications are already widely used in:

  • Data collection and analysis. The tool helps investors to understand market trends, consumer preferences and company growth forecasts.
  • Market forecasting: Market trends are predicted through machine learning algorithms and neural networks, enabling investors to make more informed decisions.
  • ESG performance metrics: leveraging machine learning algorithms enables the analysis of historical and real-time data, enabling investors and organisations to measure and compare ESG performance across companies, industries and regions.

 Challenges of using AI applications

The unbiased collection and use of data is one of the most important issues of concern. AI systems rely heavily on data for training and decision making. If this data is biased, it can perpetuate discrimination and reinforce existing biases. Google, aware of this risk, states that it is trying to teach developers about fairness considerations when building, evaluating and developing AI and machine learning models.

Another pressing issue is that of transparency in decision-making. In ESG applications it is a prerequisite to provide clear justification, both to enhance stakeholder trust and for proper accountability. And AI algorithms are considered black boxes because they do not provide transparency in the decision-making process.

The issue of security and privacy is also important. Accessing sensitive data, such as personal information, financial records or company-owned data, requires the design of strong security measures to prevent unauthorized access or data breaches.

Given that we cannot reverse the tide of technological advancement, the big call will be to define a clear framework for the operation, use and accountability of AI that ensures reliable decision-making while maximising economic and environmental impact. In conclusion, while AI-based ESG scores will probably not fully replace analysts in the near future, they are a useful complementary tool that contributes to forecasts and improves understanding of assessment results.

CSEs expertise

CSE follows closely all the trends and updates its training courses regularly with the latest legislations and ESG tools, in order to offer sustainability C-suite executives and professionals the knowledge and tools they need to navigate any challenge related to sustainability and ESG.

Attending the CSE Certified Sustainability (ESG) Practitioner Program, Leadership Edition 2023, will provide companies with the latest practical tools and resources required to implement or upscale corporate sustainability, improve ESG ratings and generate value by creating successful ESG and Sustainability strategies.


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