Responsible AI isn’t optional, it is essential

At Royal London Asset Management, we recognise the transformative potential of artificial intelligence.

As responsible stewards of our clients’ capital, we are increasingly aware of the societal and environmental risks that may arise from the inappropriate development or deployment of artificial intelligence (AI) systems. Our commitment is to promote sustainability and ethics in the evolution of artificial intelligence, which is now a feature in many aspects of work and home lives.

Our commitment is to promote sustainability and ethics in the evolution of artificial intelligence.

AI presents a range of challenges and opportunities. As AI continues to evolve, it holds the potential to drive economic growth, improve quality of life, and address complex global challenges. However, it comes with some growing concerns, particularly environmental and ethical. For example, the rapid expansion of AI increases energy consumption and carbon emissions, especially in data centres, raising sustainability challenges.

Ethically, AI systems can perpetuate bias, spread misinformation, and pose risks to privacy by collecting and analysing personal data, sometimes without adequate consent or transparency. Additionally, the adoption of AI may lead to job displacement and changes in employment patterns. These challenges highlight the importance of robust governance, transparency, and measurable sustainability targets as AI technologies develop.

Understanding the environmental impact

AI offers significant opportunities to positively impact the environment. By enabling smarter resource management, AI can optimise energy consumption in buildings and reduce waste in supply chains. It can also play a crucial role in environmental monitoring to track and analyse deforestation, pollution, and biodiversity loss in real time.

However, as the demand grows, so do the environmental impacts. Growing greenhouse gas emissions for data centres now rival those of the aviation sector [1].

According to the International Energy Agency, the combined electricity consumption of data centres, artificial intelligence, and cryptocurrencies could more than double between 2022 and 2026, rising from 460 terawatt hours (TWh) to over 1,000 TWh; roughly equivalent to the annual electricity use of Japan.

This rapid growth raises important questions about the carbon footprint of AI and its alignment with global climate goals [2].

Royal London Asset Management is actively engaging with investee companies to address the transition risks associated with AI’s environmental impact. This includes discussing strategies for securing renewable energy sources, as well as approaches to responsible management of water and land.

Responsible stewardship of natural resources is also becoming more important, especially as some governments are starting to limit where and how large data centres can be built. These restrictions are often due to concerns about land use, water consumption, and the strain on local electricity grids [3]. We encourage organisations to be transparent about their strategies and to set clear, measurable targets for reducing environmental impact. Public concern is growing, and it is essential that companies engage proactively with stakeholders to address these issues.

Navigating ethical challenges

Ethical considerations are equally significant.

• AI systems can perpetuate bias, spread misinformation, and raise serious privacy concerns.
• There is also evidence that the adoption of AI can affect wages and employment [4].

These risks highlight the need for robust governance across the entire AI lifecycle, from data collection and model development to deployment and monitoring. Transparency is critical, especially given the complexity and opacity of many AI systems. We are interested in how organisations ensure accountability and safeguard against risks such as misinformation, data misuse, and human rights violations.

Aligning with evolving standards

As new regulatory frameworks emerge, it is increasingly important for our investee companies to align their governance practices with these evolving standards. We expect companies to clearly demonstrate how their governance reflects these requirements, ensuring responsible and ethical management of AI. These regulatory frameworks include:

• European Union Artificial Intelligence Act: A new EU law to ensure AI is safe, transparent, and respects people’s rights.
• NIST Artificial Intelligence Risk Management Framework: A US guide to help organisations manage and reduce risks from AI systems.
• ISO 42001: An international standard for building trustworthy and responsible AI management systems.

Our engagement programme

Royal London Asset Management’s engagement programme is designed to promote sustainable and ethical AI across both deployers and developers. We are currently building out our assessment framework, to create a robust and transparent methodology that will help us evaluate how companies manage the risks and opportunities associated with AI.

Our engagement programme is designed to promote sustainable and ethical AI across both deployers and developers.

We recognise that this is a rapidly evolving field, and we are committed to continuous improvement. As we finalise our framework, we hope to share our investor expectations with others. In doing so, we aim to foster greater understanding and encourage best practice across the market.

We believe that engagement is an effective way to drive positive change. By working collaboratively with our investee companies, we aim to raise standards and set investor expectations to help ensure that AI delivers benefits for both the environment and communities that may be impacted by it.

Investors should engage with companies to drive sustainable and ethical AI, demanding transparency, accountability, and alignment with global standards.

Our voting, engagement, research, and advocacy activities are designed to be pragmatic, informed by evolving market insights and local best practices, and always aligned with the long-term interests of our clients. These activities aim to enhance the value and integrity of our investment decisions.

Please note that voting and engagement practices may not apply uniformly across all Royal London Asset Management funds or strategies, as each has distinct investment objectives. For details specific to your investment, please refer to the relevant fund prospectus.

[1] Measuring greenhouse gas emissions in data centres: the environmental impact of cloud computing | Insights & Sustainability | Climatiq

[2] Electricity 2024 – Analysis - IEA

[3] Hyperscale Data Centers Under Fire in Holland

[4] Can digital skill protect against job displacement risk caused by artificial intelligence? Empirical evidence from 701 detailed occupations | PLOS One

For professional investors only. This material is not suitable for a retail audience. Capital at risk. This is a financial promotion and is not investment advice. Past performance is not a guide to future performance. The value of investments and any income from them may go down as well as up and is not guaranteed. Investors may not get back the amount invested. The views expressed are those of the Royal London Asset Management at the date of publication unless otherwise indicated, which are subject to change, and is not investment advice.