It’s Not Easy Being Green in the Era of AI
As more companies adopt AI, screening out businesses with significant environmental footprints could leave investors with fewer places to put their money.
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There’s no getting around it: Artificial intelligence comes with a hefty environmental footprint.
Sure, it can transcribe meetings, streamline workflows, help drive medical breakthroughs and create hyperrealistic images of Will Smith eating spaghetti. But AI also guzzles electricity and water, generates electronic waste and fuels a data-center boom that is straining power grids. Meanwhile, its growing use in the workplace and Hollywood has raised concerns about job losses and the erosion of human creativity.
That presents a challenge for conscientious investors. As more public companies adopt AI or build the infrastructure powering it, screening out businesses with significant environmental footprints could leave clients with fewer investment options. So what does sustainable investing look like in the age of AI?
“Avoiding every company that uses it could eventually be like avoiding every company that uses the internet,” said Michael Lofley, a CFP with HBKS Wealth Advisors. “The more useful question is how a company manages its environmental impact.”
Can’t Spell ‘Sustainability’ without ‘AI’
AI may not be the core business of the Magnificent 7 stocks — or the entire S&P 500, for that matter — but it is increasingly woven into their operations and investment plans. There’s no universal system for grading companies on AI’s environmental impact, but advisors have some resources:
- The Data Center Air Pollution Tracker evaluates whether major AI companies power their data centers with clean energy or fossil fuels, scoring them from 0 to 100. No company has anything near a perfect score. Amazon leads at 61, while xAI scores 34.
- For a broader sustainability assessment, advisors can consult the S&P Global Corporate Sustainability Assessment. However, fewer than 50 US companies made the cut in its latest report, including building-products manufacturer Owens Corning, industrial-products maker Ingersoll Rand and Host Hotels & Resorts.
When designing mutual funds and ETFs, Parnassus Investments Portfolio Manager Mark Zagata said his firm looks for board-level AI governance, serious consideration of AI-related risks and respect for shareholder concerns. He pointed to Microsoft as an example. “Microsoft is conducting full audits of their own footprints,” he told Advisor Upside. “That gives us confidence to invest.”
Knowledge Is Power. Advisors should consider investing clients in the infrastructure needed to meet AI’s growing power demands, including battery storage, geothermal and nuclear energy, said Matthew Chancey, founder of Tax Alpha Companies. “You can’t screen your way out of AI. You can only build your way through it,” he told Advisor Upside.
