Without clear governance and oversight, unintended outcomes could in time threaten value creation. We consider it crucial that companies with significant exposure to AI demonstrate robust governance and oversight, ethical guidelines, appropriate due diligence, and transparent practices.
The good news is that heightened investor scrutiny of AI practices has become more evident, with the number of shareholder resolutions abrdn voted for increasing from four in 2023 to nine over the year to date, from technology giants to entertainment businesses.
Where are the investment opportunities in the AI revolution?
These annual meetings present a crucial opportunity for targeted engagement, voting and, where necessary, public statements to encourage change. While the outcomes haven’t always been clear cut, there are some important takeaways for investors concerned about the potential risks, as well as the potential rewards.
Ethical guidelines set out the principles guiding how a company will develop and deploy AI in a way that is ethical, responsible, and trustworthy.
In February, we voted for an AI resolution at Apple, calling for a transparency report and to disclose any ethical guidelines that the company has adopted regarding its’s use of AI technology. We met Apple and the resolution proponent to discuss their opposing arguments in more detail. In our view, the company is exposed to various risks associated with AI and the requested disclosure, including ethical guidelines, could provide shareholders with evidence of an approach that can protect long-term value.
We also made a public statement in support of the resolution. Although the resolution failed to pass, we were encouraged by the notable level of support it received (over 35% voted for the resolution), meaning that this issue is unlikely to go away – and may well live to see another AGM.
What will year of global elections mean for investors?
Companies with particularly large and complex operations, involving both development and use of AI technologies, could benefit from dedicated governance structures. We considered Amazon to be such a company and supported a shareholder resolution requesting the creation of a board committee on AI. We also made a public statement to that effect. In the event, almost 10% of shareholders voted for this resolution.
Robust governance, oversight and ethical guidelines need to be accompanied by rigorous due diligence to be truly effective. Advertising is Meta’s primary source of revenue. The use of personal and behavioural data in targeted advertising exposes users to the risk of privacy violations, while algorithms may unintentionally encourage bias and discrimination. When we met the company, we discussed how it uses AI in targeted advertising. We maintain that an independent review of the company’s risk management in this area would provide investors with a proportionate level of assurance and support sustainable value creation.
The company has also faced high-profile controversies regarding misinformation and disinformation, and the use of generative AI gives rise to new issues. Meta is clearly taking some steps to manage risk through mechanisms for content removal, content identification and labelling. Nonetheless, our research and engagement led us to support resolutions that would address these concerns and that would demonstrate to investors how Meta’s AI due diligence is building on its governance and oversight mechanisms, and responsible AI pillars, to protect shareholder interests.
Time to take control of your pension and your future
There is a common thread that underpins the principles discussed: transparency. Clearly there are limits – some information will be commercially sensitive, and since reporting standards for AI are limited, disclosures will have to evolve to keep pace with technological developments. But these are also the factors that makes transparent reporting so crucial. Without voluntary transparency, there is a risk that companies will be subject to burdensome regulation.
As AI technologies quickly evolve, regulatory frameworks may struggle to keep pace, meaning that shareholders cannot rely on established regulation to ensure responsible development and use of AI. Companies face a significant and evolving challenge in adapting to, harnessing, and mitigating the risks of AI.
A focus on robust governance and oversight, ethical guidelines, appropriate due diligence, and transparency is key. As the technology develops, we believe these issues will remain crucial to the responsible development and use of AI.
Stuart Riddick is senior sustainable investment manager at abrdn
