Capital Group’s latest ESG Global Study has indicated that while ESG adoption has remained steady in today’s political climate, the rise of AI brings with it new investment risks.
The report states that the adoption of ESG remains at an all-time high across the world because of a need to ensure compliance with regulatory requirements. This, in turn, is followed by investor interest in managing such risk and seeking out investment opportunities.
While the respondents to the survey — 1,130 of them — reported that AI was helping to meet the data challenges in ESG investing, it was also opening up new risks around data protection and privacy, followed by energy consumption and labour rights.
The report said: “This year’s study shows global ESG adoption remains at an all-time high. Nine in 10 (90%) investors in the study identify as ESG users — the same as last year. This illustrates ongoing strong conviction in ESG as it enters a more mature phase of growth following its rapid evolution from niche to mainstream. EMEA is the leader, with 94% of respondents adopting ESG — up one percentage point from last year. ESG adoption rates in Asia-Pacific (93%) and North America (75%) are unchanged from last year.”
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A large issue within ESG investing, write the report’s authors, lies in data and analytics, which it said are still seen as a significant challenge by more than half of respondents. The concern in this area, it says, centres around consistency and reliability within it comes to the data around such products.
There are also concerns about whether the use of AI impinges on ESG, particularly in its collection and usage of data.
ESG Global Study states: “Data protection and privacy, cited by three-quarters (76%) of respondents, is seen as posing the most material AI-related ESG risk for investments. This reflects investors’ concerns over the fallout from data breaches and digital rights such as anonymity. The issue of labour rights/job displacement is viewed as another material social risk associated with AI.”
Despite this, more than half of investors reported that they were likely to use AI to analyse ESG data, with 55% saying they would use to access data from multiple sources. There was also a marked increased in those already using advanced software tools to assimilate and standardise ESG data as well as to verify ESG credentials.
It is among this backdrop that Capital Group said that a fear of greenwashing had receded this year, with only 42% saying that it was prevalent within the asset management industry—the lowest such figure recorded since the study began in 2021.
