In recent years, sustainability as a concept has taken root. Now, most organisations have strict policies in terms of the environmental impact of their supply chain, introducing more eco-friendly packaging, and setting goals for reducing carbon emissions and other negative impacts on the planet.

Companies have also seen tighter restrictions introduced over how data is collected and used, with General Data Protection Regulations (GDPR) providing a strict framework for compliance.

Meanwhile, another area which has seen huge recent acceleration is AI, or “artificial intelligence”. It’s gathered traction in most areas of life and work, such as medical applications, search functions, and improving workplace efficiencies.

These areas could see some potential crossover for certain groups of investors, namely those in the ESG (environmental, social, and governance) arena. For companies to be included in ESG funds, they are carefully scrutinised on their stance around areas such as climate change, health and safety, and integrity and transparency for shareholders, all coming under the spotlight.

In some cases, AI will support and strengthen each of the three ESG pillars, but in other areas, there could be conflict. Read on to discover the pros and cons of AI from an ESG investment perspective.

AI is already a key feature of our day-to-day lives, in social media, biometrics, and virtual assistants

AI has developed in remarkable leaps and bounds recently. While for some it can conjure up futuristic images of “robots taking over the world”, the reality is that most of us are using it in our everyday lives already.

You’re using AI when you use Siri or other types of virtual assistant, unlock your devices using facial recognition biometrics, or notice your social media feed and product recommendations change to reflect recent purchases and searches.

But its functions now extend well beyond the everyday and are integrating into all three pillars of ESG.

AI is changing the way we tackle climate change, from predicting weather patterns to facilitating ocean clean-ups

Tackling climate change is a hugely important global mission. And AI has potentially transformative powers in this arena.

Citing data from February 2024, the World Economic Forum states that around 4 billion people already live in areas vulnerable to climate change. This is likely to lead to an extra 250,000 deaths a year between 2030 and 2050, from undernutrition, diarrhoea, malaria, and heat stress.

In terms of environmental mapping, AI can:

• Measure the accelerating pace of meltwater released into the ocean by icebergs
• Help to chart the impact of deforestation on climate change
• Predict weather patterns, to help with contingency planning and impact mitigation
• Detect objects in the ocean to enable clean-up mapping
• Track emissions from machinery and processes to support organisations with their carbon reduction programmes.

AI can also be used in an agricultural context, processing data from sensors placed on crops to assess environmental impact.

And as AI technologies develop, these applications will become even more innovative and accurate.

Clinical and medical use of AI is improving diagnostics, while in the workplace, it is strengthening health and safety programmes

AI is helping make huge strides in clinical diagnostics, with pattern recognition of CT, MRI, and ultrasound scans. It can also be used for data analysis across a wide range of applications, including clinical data, health records, and family histories.

Delivering services at large scale can also be facilitated by AI, using a standard programme which is then tailored by AI to deliver a personalised model. Sleepio is highlighted by NICE as an example of this. The self-help sleep improvement programme is based on cognitive behavioural therapy (CBT) and uses an AI algorithm to offer tailored digital support.

Workplace health and safety can also be enhanced using AI. For example, it can monitor hazards, control equipment, and introduce more sophisticated surveillance methods for crime detection and prevention.

AI can help to ensure compliance with regulations and legislation, and offer a fast solution to large-scale data dissemination

Regulatory change is commonplace across most industries. AI can support the pace of change, with tools reviewing audit documents to assess compliance, or disseminating complex information into simple summaries for easier understanding of new regulatory expectations.

This can help law-abiding organisations swerve needless fines or loss of reputation, which could simply have been down to a misunderstanding or lack of attention to a small detail.

Massive energy consumption makes AI a difficult sustainability proposition

Conversely, AI can also have negative implications for each ESG pillar, which could be a direct conflict for investors.

The energy-intensive nature of AI is almost impossible to ignore. In June 2025, the Guardian reported that Google’s carbon emissions had risen by 51% since 2019, derailing its efforts to “go green”.

This is, for the most part, due to the tech company’s increased requirement for data centre capacity to power its AI models, such as Gemini. The Guardian also cites calculations by research firm SemiAnalysis that AI will result in datacentres using 4.5% of global energy generation by 2030.

AI is automating tasks and potentially risking jobs, significantly changing the employment landscape

As more organisations are adopting AI, fears about job displacement are proving to be well-founded.

According to the World Economic Forum in April 2025, AI could replace more than 50% of the tasks performed by market research analysts and sales representatives, and 40% of employers expect to reduce their workforce where tasks could be automated using AI instead.

Data breaches and privacy issues are key threats to compliant governance

AI brings specific challenges in terms of data privacy, in particular relating to GDPR compliance. Personal data is a key driver of AI technology, for example in producing predictive algorithms.

However, much of this data is collected covertly, without users’ consent, which can lead to privacy breaches and personal details being shared without appropriate transparency. In turn, this can result in unwanted advertising or profiling, and in serious cases, identity theft.

Get in touch

It’s clear that in terms of ESG, AI can be something of a conundrum, presenting a balance of opportunities and challenges across the three pillars. If you’re seeking ESG investments, it’s important to weigh up the balance of pros and cons to establish if the investment will match your criteria.

Equally important to consider is that even if the investment is a good fit for your ESG requirements, you still need to take into account whether the risk profile fits your approach, and if the investment will help you create a balanced, diversified portfolio.

If you’d like to find out more about ESG investments, or any other type of investment for your portfolio, please get in touch and we’ll be happy to help.

Please note:

This blog is for general information only and does not constitute financial advice, which should be based on your individual circumstances. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.