As I’m writing this, the UK has just experienced its fifth heatwave of the summer with another record-breaking day of 38.1 degrees in London’s Kew Gardens on August 13th. It’s a stark reminder that the climate crisis is no longer an abstract problem for the next generation to figure out.
Our scorching summer has put the climate crisis front and centre, but the question remains: what can we actually do about it?
Alongside our day-to-day habits – recycling, using water wisely, reduce our meat and dairy consumption – one way that is often overlooked is where our money is going. Choosing investments with environmental and social considerations can, in principle, help direct money towards companies developing renewable energy, cleaner transport, energy efficiency and other climate solutions.
But while doing my own research of where I can put my money to good use, I came across an overwhelming number of ‘ESG’, impact, and sustainable funds that have been cashing in on one of the biggest themes of the past few years: artificial intelligence.
As someone who is more than sceptical about the seemingly sudden AI boom, I wondered how these AI companies are making their way into these types of funds.
Some argue that AI could play an important role in transforming vast swathes of industry, and could also have the potential to aid our endeavour in tackling the climate crisis. But it’s coming at a cost.
The International Energy Agency estimates that electricity consumption from data centres could more than double by 2030, reaching roughly 950 terawatt-hours globally, along with research from The Government Digital Sustainability Alliance’s (GDSA), stating that AI is predicted to lead to an increase in global water usage from 1.1bn to 6.6bn cubic metres by 2027 – the equivalent to more than half of the UK’s total water usage. That’s a figure that feels particularly uncomfortable this summer, with half of England officially declaring droughts in July and August, following record low rainfall and exceptionally high temperatures.
So, can companies responsible for increasing demand for energy and water really sit comfortably inside an ethical or sustainable investment portfolio?
ESG doesn’t necessarily mean that a company is environmentally friendly. It considers environmental, social and governance factors what assessing an investment, meaning technology companies can still appear in an ESG fund, despite having a significant environmental footprint.
For investors, this can make choosing a genuinely sustainable fund surprisingly difficult, which makes it increasingly important that investors look beyond the label and examine what the fund is actually holding.
What companies does the fund actually hold? What is the percentage in the portfolio? And what is the fund actually trying to achieve?
This is where ethical investing in the age of AI becomes less about avoiding technology altogether and more about understanding what our money is supporting.
Excluding every AI-related company, or company that implements AI, could mean missing businesses developing technology that may eventually help reduce emissions. But blindly investing in AI because it is the dominant growth story of the moment risks overlooking the environmental costs being created today.
As investors, we can’t control how quickly AI develops. But we can question where our money goes.
Most importantly, it’s about knowing what your boundaries are when it comes to investing in certain thematics. For me, AI isn’t one I want to embark on any time soon.
Emma Taylor is an Account Manager at Quill PR
