ESG Fund Managers Concerned About Risks of ‘Rogue AI’ in Tech Investments

Rising Anxiety in Tech Investments Over AI

ESG fund managers, who have historically seen big tech as a low-carbon, high-return investment, are increasingly worried about the sector’s exploration of artificial intelligence (AI). Marcel Stotzel, a portfolio manager at Fidelity International, based in London, points out that AI exposure now poses a “short-term risk to investors.”

Fears of AI Blowback

Stotzel expresses concern over a potential “AI blowback,” a scenario where an unforeseen event triggers a significant market decline. He cites self-learning AI systems in fighter jets as examples that warrant this concern. In response, Fidelity and other fund managers are engaging with companies developing such technologies to discuss safety mechanisms, including a “kill switch” for AI systems.

Tech Dominance in ESG Investing

The ESG investing industry is highly exposed to tech sector risks, with funds focused on environmental, social, and governance objectives heavily invested in tech assets. Notably, the world’s largest ESG exchange-traded fund is dominated by tech giants like Apple Inc., Microsoft Corp., Amazon.com Inc., and Nvidia Corp., all of which are key players in AI development.

Public Debates and Internal Tensions in AI Development

Recent events, such as the firing and rapid rehiring of OpenAI’s CEO Sam Altman, reflect growing tensions and public debates over the direction and pace of AI industry development. While some tech companies, like Apple, advocate for a cautious approach to AI, others are pushing for rapid commercialization.

Investor Scrutiny and Demand for Transparency

Investors, including the New York City Employees’ Retirement System and Generation Investment Management, are actively monitoring AI use in their portfolios and engaging with companies on both the risks and opportunities of AI. There is a growing demand for greater transparency over AI algorithms from tech companies, as seen in shareholder resolutions filed with companies like Microsoft, Apple, and Alphabet’s Google.

Governance Risks and Regulatory Calls

The lack of regulations and historical data on AI performance is a significant concern for ESG analysts like Crystal Geng at BNP Paribas Asset Management. Jonas Kron from Trillium Asset Management highlights AI as a governance risk, with even industry insiders calling for regulatory intervention.

Broader Concerns and Increasing Incidents

AI’s potential to amplify biases and enable personal data misuse, along with a significant increase in AI incidents and controversies, adds to the apprehension. Investors are also pressing companies across various sectors to report on AI guidelines to protect workers, customers, and the public from potential harms.

This heightened awareness underscores the need for careful consideration and potential regulatory measures in the rapidly advancing field of AI technology.