In our most recent quarterly meeting, Parmenion’s independent Ethical Oversight Committee (EOC) evaluated the sheer scale and velocity of the AI rollout. Beyond the investment implications, in our role as a rigorous sounding board for Parmenion’s ESG portfolios, we discussed various ESG considerations.
From an environmental perspective, the energy usage of AI data centres is huge, but it’s not just about electricity. The water usage to cool data centres is immense and an equally important consideration.
This concern is backed by sobering academic data. Research led by the University of California, Riverside calculated that 34 days of training a single model like GPT-3 can consume up to 700,000 litres of clean freshwater for server cooling. Even a brief conversation with ChatGPT effectively "drinks" a 500ml bottle of water once cooling and thermoelectric power generation are taken into account.
Yet the picture isn't entirely one-sided. AI's huge appetite for electricity is also accelerating investment in energy infrastructure.
The massive energy demands of tech giants are forcing them to fund grid infrastructure, utility upgrades, and new energy projects. This demand is potentially accelerating the transition to a smarter, cleaner and more resilient grid. According to industry reports from BloombergNEF, major technology companies like Amazon, Microsoft, and Google have contracted for record-breaking volumes of clean energy to keep pace. This is a positive side effect which can increase the use of renewable energy and assist the transition to net zero.
From a social perspective, the Committee debated the risks of rapid workplace automation, demanding a huge focus on corporate reskilling, data privacy, and ethical AI governance to mitigate the potential negative impacts.
We also discussed how AI is creating unexpected winners. Some companies now playing a critical role in the AI supply chain look nothing like traditional technology businesses. Take, for example, the Japanese food brand Ajinomoto. Previously known for manufacturing MSG and food seasonings, it has transformed into an important link in the AI supply chain.
Decades ago, it began exploring applications for by-products from umami seasoning production (an excellent example of the circular economy in action), which resulted in the development of Ajinomoto Build-Up Film (ABF), a high-insulation film used in advanced semiconductors. It’s now one of the leading companies in the world capable of producing that critical component for the semiconductor tech stack powering AI. From seasonings to chips, the AI revolution continues.
Holding the gatekeepers to account
Ultimately, the EOC's role is to make sure that the fund managers that Parmenion partners with are actively managing these sustainability risks. Are they scrutinising tech companies on data privacy and the massive environmental footprints of their data centres? Are they engaging with semiconductor giants on supply chain resilience?
Encouragingly, we are already seeing active engagement in this space, with many funds now explicitly including policies to engage with corporate holdings on the responsible use and governance of AI.
By keeping a close eye on these emerging themes and asking the difficult questions to fund managers, we aim to give advisers and their clients the confidence that Parmenion’s portfolios are positioned to capture the immense value of this technological revolution, without compromising on the human and environmental values that underpin true sustainability.
A final word from the chair
This marks my final article as Chairperson of the Ethical Oversight Committee. It has been an immense pleasure serving on the Committee the past four years, and a great honour to chair the group during a truly critical time for the ESG industry. I look forward to seeing how Parmenion continues to capture the brilliant opportunities brought about by ESG investing.
Shri Krishnansen
Chairperson of the Ethical Oversight Committee
Advancing the conversation
At Parmenion, we believe that independent oversight is key to navigating an increasingly complex world. Our Ethical Oversight Committee will continue to meet quarterly to monitor these shifting landscapes. So, stay tuned to hear more from our EOC in the coming months.
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