The AI ​​craze is overshadowing the great promise of classical technologies…

Bloomberg – The effects of the latest developments in artificial intelligence on the warming of our planet are summarized as follows: Artificial intelligence offers great benefits in all fields, From monitoring ice melt and deforestation to improving the electrical system, but it requires a lot of energy, which means increased carbon emissions and increased environmental destruction.

One consequence that gets less attention is whether or not AI is crazy. Take away fame and money Mitigating the effects of climate change.

In the opinion of James Soukaswho heads the Climate Solutions division at Investcorp, the leading alternative asset manager in the Middle East, is already happening.

Read more: Investment in electricity grids must go beyond renewables to reach net-zero emissions: BNEF

“Institutional investors have overhyped the promise of AI and risk underfunding it, with little focus on the reality and opportunity that climate presents,” Soukas said.

“This is despite overwhelming evidence that climate is a growing problem, with regulatory tailwinds supporting climate investments.”

“It’s a big deal,” says Sokas, who was previously a software and technology investor at Blackstone Inc. (BX), the hype around AI is understandable.

The technology is expected to be transformative and flourish Already generating huge profits for investors..

Just look at the Nvidia Corp. (NVDA) stock price so far in 2024. Last week, the chipmaker was briefly the world’s most valuable company (though it suffered a slight decline this week).

However, There are many outstanding questions surrounding artificial intelligence.Including its use to spread misinformation. Additionally, the regulatory landscape around the technology is still evolving.

Read more: Nvidia rebounds and a Wall Street expert explains: “AI matters more than dot-com”

With climate change, there is no such uncertainty.

Record temperatures are occurring monthly. This has prompted policymakers and financial regulators around the world to promote initiatives to achieve net zero emissions. There is also a general consensus that The costs associated with decarbonization will exceed US$100 trillion.And this doesn’t even include financing climate adaptation.

Artificial intelligence is what is sucking up money and attention from investors these days, “but a lot of capital is needed in a short period for climate finance,” Sokas said.

AI is expected to attract trillions of dollars, meaning it’s already in the same ballpark as clean energy and climate technology. Investment in clean energy technologies is expected to reach a record $2 trillion this year. Trillions of dollars will be needed to achieve global climate goals.

Investcorp, which oversees about $50 billion in assets, defines “climate solutions” as products and services that address decarbonization of energy sources, such as renewable energy development.

Other examples include investments that facilitate the removal or mitigation of greenhouse gas emissions, including reforestation or low-carbon steel projects, as well as companies that provide climate-related analyses, such as carbon accounting.

While Soukas sees AI as essentially a competitor in trying to get venture capital, Marcus LeipoldThis is important, said the professor of finance at the University of Zurich and president of the Swiss Institute of Finance. We know that AI and climate solutions are not mutually exclusive. .

“Instead of seeing AI and climate solutions competing for funding, we should focus on leveraging AI to improve our climate response,” Leibold said. “AI has enormous potential to contribute to climate solutions.”

However, just as sustainability-minded investors should be vigilant about greenwashing, so too should They should be careful about “AI washing.”“Without rigorous examination of their actual goals,” said Leibold, who defines the term as investments directed into so-called AI projects “without rigorous examination of their actual goals.” impact.”

“We have to differentiate between the value of AI and the noise surrounding AI,” he said. Buddha Bhattacharya, Head of Systematic Research at Lombard Odier Investment Managers. “We are so far behind in our ‘traditional’ efforts to address climate problems, in our antiquated way of working, that accelerators like AI can only bring the hope of positive disruption, not distraction.”

Read more: Countries are struggling to reach agreement on climate finance for poor countries

Sustainable finance in a nutshell

Paul BodnarClimate activists who attack the fossil fuel industry for causing the climate crisis are shortsighted, says the former head of sustainable investing at BlackRock Inc. (BLK).

“There’s a lot of demonization right now between the industry and the environmental community,” said Bodnar, now director of sustainable finance at the Bezos Earth Fund. “It’s like a fight to the death. There needs to be a little bit more of a collaborative attitude.”

Bodnar’s comments follow those of executives such as the KKR & Co. co-founder. Henry Kraviswho said last week that Climate activists downplay the difficulty of shifting the economy toward clean energy. “They don’t understand the facts,” he said after activists interrupted his speech to criticize KKR’s investments in fossil fuels.

• Catastrophe bonds, which have fueled a top hedge fund strategy for 2023, are finding a broader audience.
• Fund managers overseeing the commercial real estate sector say large parts of their portfolios contain assets that could now be considered stranded by European energy needs.
• As banks transfer credit risk to less regulated investors, buyers on the other side of those deals want an added advantage: sustainability.

Read more at bloomberg.com