Railpen, the UK’s rail workers’ pension fund managing £34bn of assets on behalf of 350,000 members, is urging investors to review their portfolios for risks related to artificial intelligence (AI), to ensure effective governance of AI.
In partnership with Chronos Sustainability, the pension fund has published a new report – Achieving effective AI governance – to help investors assess the systemic risks of AI.
The report seeks to explore how AI systems are classified and the risks they could pose to portfolio companies without an effective system of governance.
“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,” said Caroline Escott, co-head of sustainable ownership and head of investment stewardship at Railpen.
“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,” she added.
However, Escott said, as AI adoption becomes mainstream in business practices, there has been a steady increase of AI-related incidents and controversies.
“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,” she said.
Earlier this year Railpen published a joint report with Royal London Asset Management (RLAM) on growing cybersecurity risks in investment portfolios, which offered an evidence-based perspective on the financial materiality and threat landscape of cybersecurity risk, as well as up-to-date practical guidance for both asset owners and asset managers on how to engage with portfolio companies on the issue.
Governance framework
To help investors assess the materiality of AI risks, Railpen and Chronos also developed an AI Governance Framework (AIGF) that translates responsible AI principles into actionable practices based on four key pillars: governance, strategy, risk management and performance reporting.
The report calls on investors to take specific steps to ensure effective governance of AI:
- conduct a high-level review to identify potential AI-related portfolio risks using the report’s criteria;
- engage priority companies, guided by Railpen’s AIGF and best-practice disclosure standards, to assess and discuss AI risk management;
- explore policy advocacy to promote responsible AI use and ensure investor perspectives help shape evolving regulation.
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