Risk Management » AI Cure For ESG Woes Can Be Worse Than The Disease

AI Cure For ESG Woes Can Be Worse Than The Disease

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November 7, 2022

Artificial intelligence is widely regarded in the financial industry as the only realistic solution to the massive compliance burden of ESG (environmental, social & governance) obligations, with regard to managing companies’ massive data holdings. But an article from Thomson Reuters raises the prospect that without due care, this is a case where the AI cure could be worse than the disease.

The writer groups the problems into three categories. The first has to do with the fact that AI can be an energy glutton. We knew that, but some of the details are startling nonetheless. E.g. one recent estimate suggests that “the carbon footprint from training a single AI is 284 tons, equivalent to five times the lifetime emissions of the average car.” The second problem has to do with the fact artificial intelligence is still a creature on a leash, at the other end of which is one or more human beings. Even when there are some intermediate AI trainers along the way, algorithms still reflect the perceptions and values of their human creators.

It’s therefore not surprising, the writer says, “that mortgage, loan, and insurance firms have already found themselves on the wrong side of regulators when the AI they used to make lending and insurance pricing decisions turned out to have absorbed and perpetuated certain biases.”

The third problem is a lack of technical expertise, including at the senior management level. Rolled into that category is something perhaps even more intractable: lack of expertise in the area of ethics. An academic researcher predicts this will be a major issue for companies in the near future, to the extent it will become a job or consultant listing and something boards will need to pay close attention to.

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