AI Obsession Obscures Bigger Promise of Climate Tech

(Bloomberg) — The implications for our warming planet of recent breakthroughs in artificial intelligence boil down to this: AI offers great advantages in everything from monitoring ice melt and deforestation to optimizing power grids, but it's incredibly power hungry, which can mean more carbon emissions and more climate destruction.

One impact that gets less focus is whether the AI hype is taking attention and money away from climate-change mitigation. James Socas, who runs the climate-solutions business at Investcorp, the Middle East's biggest alternative asset manager, says that's already happening.

"Institutional investors have over-torqued on the promise of AI and risk underfunding, and are underfocusing on the reality and opportunity of climate," Socas said. "And that's despite the clear evidence that climate is becoming a bigger issue with very favorable regulatory tailwinds that support climate investments."

Socas, previously a software and technology investor at Blackstone Inc., said the excitement over AI is understandable. The technology is widely expected to be transformative and the boom is already delivering great returns for investors. Just look at Nvidia Corp.'s stock price so far this year. For a brief moment last week, the chipmaker ranked as the world's most-valuable company (though this week it hit a bit of a rough patch). 

Related:AI Basics: A Quick Reference Guide for IT Professionals

Still, there are a lot of lingering questions around AI, including its use to spread misinformation. Additionally, the regulatory landscape around the technology is still evolving.

With climate change, there's no such ambiguity. Record-breaking temperatures are a monthly occurrence. And that's prompted policymakers and financial regulators around the world to promote initiatives aimed at achieving net-zero emissions. It's also generally agreed that decarbonization-related costs will exceed $100 trillion — and that doesn't even include funds for climate adaptation.

Socas said these days it's AI that's soaking up money and investor attention, "but there's a need for an enormous amount of capital in a short period for climate finance."

AI is expected to draw in trillions of dollars, which means it's already operating in the same ballpark as clean energy and climate tech. Investment in clean energy technologies will total a record $2 trillion this year, and yet trillions of dollars more will be required if global climate goals are to be met.

Investcorp, which oversees about $50 billion of assets, defines "climate solutions" as products and services that address the decarbonization of energy sources, such as the build out of renewables. Other examples include investments that facilitate the removal or mitigation of greenhouse gas emissions, including low-carbon steel or reforestation projects, as well as companies that provide climate-related analysis such as carbon accounting.

Related:Microsoft’s AI Push Imperils Climate Goal as Carbon Emissions Jump 30%

While Socas sees AI as essentially a rival in the bid for investor capital, Markus Leippold, a finance professor at the University of Zurich and senior chair at the Swiss Finance Institute, said it's important to recognize that AI and climate solutions aren't mutually exclusive.

"Rather than viewing AI and climate solutions as competing for funds, we should focus on leveraging AI to enhance our climate response,"Leippold said. "AI has immense potential to contribute to climate solutions"

Nevertheless, just as sustainability-minded investors need to be on the lookout for greenwashing, they also must beware of "AI-washing," said Leippold, who defines the term as investments directed towards projects labeled as AI "without rigorous scrutiny of their actual impact."

"We have to differentiate the value of AI from the noise around AI," said Budha Bhattacharya, head of systematic research at Lombard Odier Investment Managers. "We are so far behind in our 'traditional' efforts in addressing climate issues, in our beaten track modus operandi, that accelerators such as AI can only bring hope of positive disruption, not distraction."

Sustainable Finance in Brief

Stop picking on Big Oil. So says Paul Bodnar, BlackRock Inc.'s former chief of sustainable investing, who contends climate activists who attack the fossil fuel industry for causing the climate crisis are being shortsighted. "There's too much demonizing between industry and the environmental community right now," said Bodnar, who now serves as director of sustainable finance at the Bezos Earth Fund. "It's like a fight to the death. It needs to be a little bit more of a cooperative posture." Bodnar's comments follow those of executives including KKR & Co. co-founder Henry Kravis, who said last week that climate activists underestimate the difficulty of shifting the economy to clean energy. "They don't understand the facts," he said after activists interrupted his speech to criticize KKR's fossil-fuel investments.

Henry Kravis, co-founder and co-executive chairman of KKR, speaks during the Bloomberg Invest event in New York, US, on Wednesday, June 7, 2023. The conference invites investors, from institutional and high-net worth to private and retail, to leave with fresh perspective and crucial insight for 2023 and beyond. Photographer: Jeenah Moon/Bloomberg