Technology, Insights Beyond Investing AI: A tool or a structural driver?

While AI and tech may rhyme, in our view, AI can be leveraged across multiple industries, from healthcare to education to financial services. We look at it in two ways: as a tool, and as a structural driver.

AI, as a tool used across industries, can be a differentiator in two ways: separating those who can adapt and adopt from the rest, and distinguishing companies with large amounts of proprietary data to generate non-replicable insights. Adoption may bring efficiency gains, but there are also risks emerging from regulatory, intellectual property, and sustainability concerns. Over the longer term, we expect it to become a "table stakes" tool, just like how email communication became the norm in business within a couple of decades after the first email was sent on ARPANET in 1971.

However, AI is not like email. We expect its impact to extend beyond being a tool for efficiency to potentially disrupting how institutions and organizations go about their business, be it in the provision of healthcare, education, government services, climate change response, or others. We explore a few areas of adoption below.

Healthcare: Innovation and service provision in healthcare are likely to benefit from improved generative AI models. Near-term use cases are likely tied to digitalization of healthcare, from improved collection of healthcare information to additional transparency and diagnosis in real time from wearable devices (e.g., smartwatches). Put together, these AI applications could change diagnosis and patient treatment, with more personalized, preventative care and time spent outside the hospital.

Other than patient care, large language models, combined with superior computing power, could bring down the cost of innovation for drugs. Themes ranging from healthtech to oncology present numerous opportunities to deploy AI over the longer term.

Education: According to research by Harvard University's School of Education, personalized learning is a cornerstone of improved education outcomes. AI and large data models could help with this, from chatbots providing one-on-one guidance to students, to serving as diagnostic tools to help educators understand and tailor to student needs.

Before AI can be used as an aid to education, education curriculum models and objectives will need to rapidly evolve as students use free tools like ChatGPT to self-study. Much of this evolution will occur in schools and government institutions. The introduction of AI will be disruptive to education tech solution companies if they are unable to leverage it as a tool in their business models, whereas companies utilizing AI to their benefit should be better positioned. Investors should continue to focus on whether their portfolios are prepared for these structural changes over time. We discuss these opportunities further in our

"Education services" report.

Beware of sustainability gaps: The rapid growth in generative AI does come with challenges, however. Risks range from models which are "unreadable" (i.e., humans cannot interpret why the model presented a specific solution), to AI "hallucination" (or coming up with false results), to models trained on data with embedded bias accelerating it further. Care in governance and design at this next stage of evolution is critical. We anticipate sustainable investing (SI)-focused investors will increase their engagement on these topics.

Takeaways for investors:

• We see generative AI as a tool and as a structural driver of disruption. In the near to medium term, companies that adapt and adopt will likely be able to differentiate. In the longer term, we expect it to become a "tablestakes" technology across businesses.
• AI could be a major disruptor in how business is carried out across healthcare, education, and government services, to name a few. We see longer-term opportunities in themes ranging from healthtech to oncology to education services.

Main contributors: Amantia Muhedini, Michelle Laliberte, Stephanie Choi

For more, see the full report - Sustainable Investing Perspectives: AI, droughts and hydropower, and LGBTQ+ investing , 6 June 2023.

Content is a product of the Chief Investment Office (CIO).