'AI blowback' fears grip the ESG fund managers betting on Big Tech

ESG fund managers who turned to big tech as a low-carbon, high-return bet are growing increasingly anxious over the sector’s experimentation with artificial intelligence.

Exposure to AI now represents a “short-term risk to investors,” said Marcel Stotzel, a London-based portfolio manager at Fidelity International. 
 

Stotzel said he’s “worried we’ll get an AI blowback,” which he describes as a situation in which something unexpected triggers a meaningful market decline. “It takes just one incident for something to go wrong and the material impact could be significant,” he said. 
 

Examples that Stotzel says warrant concern are fighter jets with self-learning AI systems. Fidelity is now among fund managers talking to the companies developing such technologies to discuss safety features such as a “kill switch” that can be activated if the world one day wakes up to “AI systems going rogue in a dramatic way,” he said. 
 

The ESG investing industry may be more exposed to such risks than most, after taking to tech in a big way. Funds registered as having an outright environmental, social and good governance objective hold more tech assets than any other sector, according to Bloomberg Intelligence. And the world’s biggest ESG exchange-traded fund is dominated by tech, led by Apple, Microsoft, Amazon and Nvidia. 
 

Those companies are now at the forefront of developing AI. Tensions over the direction the industry should take — and the speed at which it should move — recently erupted into full public view. This month, OpenAI, the company that rocked the world a year ago with its launch of ChatGPT, fired and then rapidly rehired its chief executive, Sam Altman, setting off a frenzy of speculation. 
 

Internal disagreements had ostensibly flared up over how ambitious OpenAI should be, in light of the potential societal risks. Altman’s reinstatement puts the company on track to pursue his growth plans, including faster commercialization of AI.
 

Apple has said it plans to tread cautiously in the field of AI, with CEO Tim Cook saying in May that there are “a number of issues that need to be sorted” with the technology. And companies, including Microsoft, Amazon, Alphabet Inc. and Meta Platforms Inc., have agreed to enact voluntary safeguards to minimize abuse of and bias within AI.
 

Stotzel said he’s less worried about the risks stemming from small-scale AI startups than about those lurking in the world’s tech giants. “The biggest companies could do the most damage,” he said.
 

Other investors share those concerns. The New York City Employees’ Retirement System, one of the biggest US public pension plans, said it’s “actively monitoring” how portfolio companies use AI, according to a spokeswoman for the $248 billion plan. Generation Investment Management, the firm co-founded by former US Vice President Al Gore, told clients that it’s stepping up research into generative AI and speaking daily with the companies it’s invested in about the risks — as well as the opportunities — the technology represents.
 

And Norway’s $1.4 trillion sovereign wealth fund has told boards and companies to get serious about the “severe and uncharted” risks posed by AI.