Role of AI in Strengthening ESG Governance: Perspective From Industry Experts

Introduction

Artificial Intelligence is an eminent technology which can perform tasks similar to humans. With the help of algorithms, AI has the capability to solve complex problems with less time. It is also trained to sense, comprehend, act and learn (Accenture,2022). ESG (Environmental, Social, and Governance) on the other hand has gained prominence and it is used to evaluate the investments of the organizations. Investors who are socially conscious prefer those companies which are concerned towards environment, employees and many other things apart from mere profits.  ESG issues have motivated companies to adopt eco-friendly practices which is a concern to most of the Gen Z investors. One such example can be Reliance industry’s leading contribution towards CSR. AI in ESG investing for companies like Reliance can help in analysing huge demographics data and let the company know which segment of the society needs more support. Reliance will be able to make data driven decisions if AI is implemented in ESG investing. Artificial Intelligence in general can change the way how business is portrayed in the eyes of stakeholders.  

It requires data related to customer history, geographical data, financial auditing, laws and regulations for ensuring businesses are aligned with ESG criteria.  If businesses are being serious about ESG it is also time to be serious about AI as there might be many agencies that provide ESG assessments which can compromise on integrity of scoring process (Dressler, n.d.).

In today's world, handling large amount of management data and analysing has become challenging to businesses. Fortunately, AI solutions are changing the industries by implementing automated tasks and improving the efficiency.  This automation trend has the capacity to reduce errors and enhance decision making. The data analysis and interpretation of AI outperforms those of human and making it a valuable tool. It is very important to have a balance of both, especially in the situations that requires careful judgement. AI tools have brought significant changes in business sector by automating time consuming processes and does offer great potential for increasing productivity. As the awareness of its benefits have increased, this trend is expected to strengthen. Regulators can enhance their enforcement efforts by utilizing AI, that involves analytical insights to support investigation and enforcement actions. AI mainly focuses on simplifying and clarifying complicated sustainability rules. Additionally, it enables for an easier understanding and communicate effectively in relation to important sustainability concerns (De Villiers et al., 2023a). 

When it comes it complex ESG investing decisions, generative AI can be beneficial. Generative AI can break down the complexity of sustainable investment and can easily guide us through what is considered as ethical and sustainable. Identifying sustainable investment for an individual investor can be challenging sometimes mainly because there is no uniform standard that is established. Individuals may relay on the ESG disclosures prepared by the company and most of the time companies hide the material risk associated as per the OECD report (Lack of Standardized ESG Data May Hide Material Risks, OECD Say, n.d.). On the other hand, how ethically can AI be employed is also debatable. A company’s reputation will be at trouble if they undermine to consider the likes and preferences of its stakeholders. 

ESG ratings have become very important in the business field. They mainly affect how companies make their decisions and the markets view them. Companies sometimes feel restricted as they push themselves to improve their ESG ratings which does results in the downside of stakeholders.  The way people view ESG ratings varies, therefore those who indulge in it must make the best use of it for their specific fields. Banks having good ESG ratings can benefit them during tough economic times although the effect of ESG ratings does differ from different businesses. It mainly impacts on how much companies make and borrow. ESG not only focuses on financial assets but also studies about non-financial factors which means focusing on how well a business is able to come with innovative ideas in improving their current position, their contribution towards sustainability and risk management. To truly understand how ESG affect the company’s overall performance researchers have looked at factors other than standard financial measures. They consider broader set of indicators to get a complete picture (Wan et al., 2023).