Under attack, ESG investing finds an AI savior

Driving the news: Alabama's state house Wednesday passed a bill banning the state government from doing business with companies investing according to ESG criteria, just weeks after Florida Gov. Ron DeSantis signed sweeping anti-ESG legislation.

• 25 states are seeking to block Biden administration efforts to encourage ESG considerations in investment decisions.

What's happening: Under government pressure to show commitment to climate action, and through peer and media pressure at events like the World Economic Forum, CEOs at many major companies have raced to show ESG credentials in recent years.

• But ESG specialists Axios spoke to say ESG data collection is often primitive: full of gaps and guesswork, and sitting in isolated spreadsheets.
• Lack of quality connected data leaves many investors unable to spot a good ESG investment from a bad one and opens companies to charges of "greenwashing" and political attacks.

ESG's opponents call the movement a "woke scam" — and they're legislating to keep ESG principles out of government business and your 401(k).

• That opposition prompted President Biden's first veto, in March, to preserve a Department of Labor retirement investment choice rule.

Zoom out: The key to ESG investing is measuring company risk and performance across a supply chain, on issues ranging from carbon emissions to labor conditions.

• Companies are under increasing pressure on these topics as they get closer to deadlines for meeting major promises they've made — like going carbon-neutral.
• The promise of generative AI is in connecting data, letting companies not just see what's happening, but helping them turn the data into actionable insights in real time.
• AI-based tools are are now measuring workforce diversity and energy usage, using satellite images to track damage in forests and mines, remotely monitoring factory conditions, and offering safety tips to drivers.

Yes, but: AI use deserves its own ESG scrutiny — including any time it prompts job cuts, intensifies energy use, amplifies biased data or enables Big Brother-style surveillance.

Be smart: COVID and rising geopolitical tensions have forced logistics managers to radically rethink supply chains. Several told Axios they see AI tools as the next big leap forward, for both managing ESG reporting and delivering efficiencies.

By the numbers: 82% of American investment managers use ESG analysis to make decisions, per Russell Investments.

• 63% of voters oppose government restrictions on ESG investing. In contrast to their representatives, Republican voters are the most likely to consider ESG restrictions as excessive market interference.
• 84% of 1525 operations leaders surveyed by Lawless Research in March said they plan to use generative AI by 2024.

What they’re saying: Creating meaningful information for ESG investors is “a connected data game,” said Emil Eifrem, CEO and co-founder of Neo4J, which provides graph databases to the 20 largest banks in North America.

• "Anyone producing physical goods has a global supply chain spanning continents that’s 20-30 levels deep," Eifrem said.
• Jeff Hausman, chief product officer at Samsara, a connected operations company, told Axios that AI is delivering dramatic improvements in truck fleet management for his customers, from fuel emissions to accident reduction.

What’s next: Hausman expects demands for more visibility in supply chains to lead to more AI use: “How many organizations had ESG officers five years ago? Very few. You're going to see new types of job creation as these things come together,” he said.

• At the same time, AI-based tools will increasingly be used to model the future impacts of investments so they can be assigned ESG ratings.