Artificial Intelligence oversight structure unveiled by Railpen for risk management
In a groundbreaking move, UK pensions manager Railpen, in partnership with Chronos Sustainability, has published a comprehensive report focusing on Artificial Intelligence (AI) and its potential impact on portfolio companies. The report, aimed at helping investors understand the significance of AI in their portfolios, offers guidance on managing AI risks and harnessing its opportunities.
Dr Rory Sullivan, CEO at Chronos Sustainability, emphasizes the systemic risk that AI can pose and the significant opportunities it presents. He urges investors to take action, leveraging the AI Governance Framework (AIGF) to engage proactively with businesses and drive effective AI governance across sectors.
The AIGF, an integrated system of policies, processes, and tools designed to manage AI ethically, legally, and operationally, is central to the report. It ensures AI compliance with regulations, promotes transparency, accountability, risk mitigation, and fosters sustainable innovation.
For investors, the AIGF provides a strategic advantage. It helps manage AI risks and harness benefits by:
- Identifying and prioritizing AI risks and opportunities in portfolio companies, enabling targeted risk management and value creation strategies.
- Ensuring compliance with emerging AI regulations, reducing legal and reputational risks in investments.
- Enhancing transparency and accountability of AI systems used by portfolio companies, improving trust and stakeholder confidence.
- Monitoring AI performance and ethical use continuously, allowing investors to track AI impact, operational risks, and alignment with ESG criteria.
- Driving sustainable innovation by backing companies with mature AI governance, which are statistically more likely to succeed and scale responsibly.
Railpen recognizes the significant long-term opportunities presented by AI and has made investments across their real assets and equity strategies. Caroline Escott, co-head of sustainable ownership and head of investment stewardship at Railpen, comments that as AI adoption becomes mainstream in business practices, AI-related incidents and controversies are steadily increasing. She calls on other investors to continue engaging with their portfolio companies on AI risks.
The report also encourages investors to participate in policy advocacy on responsible AI to ensure investor perspectives inform regulation. It introduces the AI Governance Framework, which translates responsible AI principles into practices under four pillars: governance, strategy, risk management, and performance reporting.
Notably, Railpen and RLAM have issued cybersecurity guidance for investors, a separate report from the AI report mentioned earlier. The publication follows earlier joint guidance from Railpen and Royal London Asset Management on cybersecurity risk and resilience.
In 2024, 72% of companies had adopted AI in at least one business function. As AI continues to permeate businesses, understanding and managing AI risks and opportunities becomes increasingly crucial for investors. The report published by Railpen and Chronos Sustainability serves as a valuable resource in this regard.
[1] AI Governance Framework [2] EU AI Act [3] NIST AI Risk Management Framework [4] UK AI Strategy [5] ESG Criteria
- Dr Rory Sullivan, emphasizing the integration of AI in business, recommends investors to leverage the AI Governance Framework (AIGF) to proactively engage with businesses, ensuring compliance with emerging AI regulations, promoting transparency, and fostering sustainable innovation.
- Recognizing the expansion of AI in business practices and the subsequent risks, Caroline Escott from Railpen encourages investors to identify and prioritize AI risks and opportunities in their portfolios using the AIGF, enabling targeted risk management and value creation strategies.
