Railpen and the sustainability consultancy Chronos Sustainability have published a new report, offering practical guidance to investors on managing AI-related risks within portfolio companies.
The report, ‘Achieving Effective AI Governance’, comes in light of increasing AI adoption and emerging regulatory frameworks such as the EU AI Act.
The report includes the AI Governance Framework (AIGF), a practical tool for evaluating companies’ AI risk management. It is built around governance, strategy, risk management, and performance reporting and offers investors a structured approach to evaluating AI risk management.
Around 72 per cent of companies were using AI in some part of their business by 2024 and over 60 per cent of S&P 500 companies see AI as a significant risk. The report encourages investors to evaluate these risks, engage with companies on their AI practices, and back policies that help close the gap between fast-moving AI tech and regulation.
This report fits with Railpen’s broader work on managing risks from new technologies and builds on earlier guidance related to cybersecurity in investment portfolios.
Railpen co-head of sustainable ownership and head of investment stewardship Caroline Escott says: “As a long-term investor and a universal owner of assets, we have a duty to members to understand and act upon evolving risks and opportunities that could affect our portfolio companies as well as the wider health of the economy and financial markets.
“We recognise the significant long-term opportunities presented by AI and this is reflected in the investments that we have made across our real assets and equity strategies.
“However, as AI adoption becomes mainstream in business practices, we are seeing AI-related incidents and controversies steadily increase. It is therefore critical for us to continue engaging with our portfolio companies on AI risks and we are calling on other investors to do the same.”
Chronos Sustainability CEO Dr Rory Sullivan says: “We are pleased to have partnered with Railpen on this report which makes plain the systemic risk that AI can pose, alongside the significant opportunities it presents. We urge investors not only to take note, but to take action – leveraging this framework to engage proactively with businesses and drive effective AI governance across sectors.”
