Railpen has launched a framework designed to help investors and portfolio companies oversee artificial intelligence (AI) risks as adoption accelerates and new rules emerge.
The report, Achieving Effective AI Governance, produced with Chronos Sustainability, positions AI as a source of opportunity but also a systemic risk, and is intended to guide investor engagement as firms scale up the use of AI and similar technologies across their operations.
A survey from global consultancy firm McKinsey, published earlier this year, found that 78% of respondents said their organisations used AI in at least one business function, up from 55% just two years previously. The areas in which AI use is most common are IT and marketing and sales.
“It is critical for us to continue engaging with our portfolio companies on AI risks, and we are calling on other investors to do the same.”
Caroline Escott, Railpen
Railpen and Chronos cited this rapid take-up of AI as a key driver of their work.
Within the report, the two organisations included an AI Governance Framework, built around four pillars: governance, strategy, risk management and performance reporting. It translates high-level responsible AI principles into concrete practices that investors can evaluate and discuss with boards and executives.
Caroline Escott, co-head of sustainable ownership and head of investment stewardship at Railpen, said: “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.”
What investors are asked to do
Railpen and Chronos set out three immediate steps for investors seeking to get a better handle on AI risks and opportunities within their portfolios.
First, they can conduct a high-level assessment of portfolio exposure to AI using the criteria in the report. The second step involves prioritising company engagement using the framework alongside guidance on good practice disclosure and sample questions to structure dialogue.
Third, the report said, investors should consider policy advocacy on responsible AI to help close the gap between regulation and the pace of technological change.
The report also explained how Railpen was pursuing strategic benefits from AI across its real assets and equity strategies. It has also worked with Royal London Asset Management on research around how to take a proactive approach to cybersecurity risk and resilience.
Railpen manages around £34bn on behalf of more than 350,000 members of the Railways Pension Scheme, a multi-employer defined benefit and defined contribution arrangement. Chronos Sustainability is a specialist sustainability advice company.
