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The ESG Review: AI challenges put corporate governance in the spotlight

Corporate governance has been firmly in the headlines this week.

But not just about the Post Office’s Horizon computer system scandal. Apart from the threats to the world of geopolitical conflict and climate change, the other topic in the news, given the level of debate about it at the World Economic Forum in Davos, has been Artificial Intelligence (AI).

Not so much the potential of technology, but how business will look it capitalise on it and how corporate governance will need to ensure that firms have the right grip on it.

As the news site FinTechFutures put it, after a couple of years of extreme hype over AI, 2024 may be all about its governance.

And the WEF itself, in this paper, proclaimed that “Compliance, operational, reputational, and regulatory risks – the ramifications of genAI are as intricate as the opportunities.”

AI is shaping up to be the most important technological advance of our lifetimes, even moreso than the internet infrastructure that gave wings to the digital age in the 1990s. But the way that it does that is currently predominantly in the hands of corporate governance structures and the decisions that leaders of companies make in order to tap into its potential. And if the current market is anything to go buy, they are also under pressure to get a move on to avoid missing the boat.

Central to that is what observers are politely calling ‘alignment’ - of public safety and the drive for profit. This Harvard Business Review paper is the clearest outline of the challenges that I’ve read so far. As it puts it: “One crucial problem in AI safety is the so-called “alignment problem”: Superintelligent AI might have values and goals that are incompatible with human well-being. This sounds like a science-fiction fantasy, but the consensus among AI researchers is that human-level AI is imminent, and the alignment problem is real.”

Where does the UK stand on this, and are we going to see new demands on businesses headquartered here for more stringent governance structures and mandates? Well, firstly, cast your mind back to that infamous Rishi-meets-Elon session last November, which concluded that the UK would not rush to regulate AI, at least in the short term, despite the EU moving on it first.

But the governance question is not just one waiting for regulation to start to provide some answers. Increasingly, we can expect to see the ESG factors that reflect effective governance - and readiness for what more advanced AI will bring - become more material to corporate value and a more prominent aspect of ESG agendas.

Getting that approach to governance right, and using it to strengthen reputation in this area, will be made even more challenging by the pressures leadership teams will be feeling. According to a major PwC survey, almost half of large company CEOs fear their firms won’t survive a decade if AI and climate change run riot.

This recent Financial Times piece made the case for avoiding a single point of failure in the global governance of AI - something that is understandably desirable, but will be highly challenging to achieve. “We need strong independent and democratic oversight, involving not only a national regulator but also civil society, independent academics and the international community,” its author wrote.

At Davos, there may have been a lot of froth this week about the opportunities and risks of AI, which have put governance more in the spotlight. Once the execs and entourages have gone home, the question is how much what was discussed this week will help to forge a path to a global approach to governance of AI’s potential, or as this Swiss publication put it, “To make headway, WEF will have to find common ground among countries at a time when national initiatives are proliferating.”

The ESG News Review is written by Steve Earl, a Partner at PR agency BOLDT.

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