How can AI expose ‘very real’ ESG risks?

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The global head of ESG research at UBS Group’s investment bank says artificial intelligence has the potential to expose risks that would otherwise remain hidden, putting asset managers in a better position to comply with increasingly tough regulations.

The comments come as the European Union initiates a review of the asset management industry to monitor how well investment firms are complying with the wide range of regulations being churned out.

Recent laws passed include a landmark agreement to ensure supply chains leading to the EU aren’t tainted by deforestation.

AI in the race to net zero

Vicki Kalb, who oversees ESG research for UBS from London, sees the deforestation law as an area in which AI can make a meaningful difference for investors.

“One of the key areas to be looking at is land use change and geospatial mapping particularly,” she told journalists during a webinar on Thursday. “Deforestation is a particularly important area of interest at the moment” and “it’s now a very real risk issue from a regulatory perspective in the EU.”

Deforestation and forest degradation are responsible for almost 15 per cent of the world’s greenhouse gas emissions, and the global economy won’t reach net zero carbon emissions without putting an end to the practice.

It would likely cost more than $130bn a year to end deforestation by the end of this decade, according to a report published earlier this year by the Energy Transitions Commission, which counts senior BP and BlackRock employees among its members.

Meanwhile, artificial intelligence tools are gaining traction as demand to analyse huge amounts of data grows.

“While environmental data availability and quality has definitely improved dramatically over the last few years, any further improvement in highlighting issues in the first place — we would hope — would be a necessary first step in getting to a solution,” Kalb said.