AI, deforestation and regulatory fragmentation among top investor risks in 2024, says ISS
ISS ESG has highlighted 10 trends it believes will affect investor returns and engagement in 2024
Artificial intelligence, EU rules limiting imports of commodities linked to deforestation and increasingly fragmented environmental, social and governance laws are among the top risks facing investors this year, according to data provider ISS ESG.
In its 2024 global outlook report, ISS predicts that companies’ speedy adoption of AI could create future liabilities, with existing privacy and property laws already offering the basis for liability. Property laws such as copyright protections could come into play, with ISS observing that data scraped from the internet could be subject to ownership claims.
“Absence of regulation may not equate to absence of liability,” the report argues. It notes that in October 2023, the Information Commissioner’s Office announced a preliminary enforcement notice against Snap Inc and its subsidiary Snap Group Limited for failing to assess the privacy risks posed by its AI chatbot in the UK. Microsoft, meanwhile, faces a class action lawsuit in the US linked to the information used to develop OpenAI’s ChatGPT tool, it says.
Regulation designed to tackle the impact of climate change also features in ISS’s list of global trends. The provider highlights the EU deforestation law that will require some imported products and commodities to have no links to the clearance of forests by the end of 2024. It suggests the law could encourage greater awareness of investors’ exposures to nature-related risks.
The global regulatory drive towards standardised climate-related disclosures, meanwhile, will maintain demand among financial institutions for climate scenario analysis tools, and ISS predicts this analysis is likely to become more sophisticated.
Fragmenting rules governing ESG disclosures for investors could see disclosure standards struggling for compatibility, despite the reporting standards developed by the International Sustainability Standards Board, the European Financial Reporting Advisory Group and the European Commission, respectively, all becoming more aligned last year. The provider says sustainability reporting rules are unlikely to become more coherent across different regions in the short term.
ISS also lists an uncertain macroeconomic environment, supply chain management and digital health among its global trends. You can read the full report here.