CIGI Papers No. 279 — August 2023 AI-Related Risk The Merits of an ESG-Based Approach to Oversight Mardi Witzel and Niraj Bhargava CIGI Papers No. 279 — August 2023 AI-Related Risk The Merits of an ESG-Based Approach to Oversight Mardi Witzel and Niraj Bhargava About CIGI Credits The Centre for International Governance Innovation (CIGI) is an independent, non-partisan think tank whose peer-reviewed research and trusted analysis influence policy makers to innovate. Our global network of multidisciplinary researchers and strategic partnerships provide policy solutions for the digital era with one goal: to improve people’s lives everywhere. Headquartered in Waterloo, Canada, CIGI has received support from the Government of Canada, the Government of Ontario and founder Jim Balsillie. Managing Director of Digital Economy Robert Fay À propos du CIGI Le Centre pour l’innovation dans la gouvernance internationale (CIGI) est un groupe de réflexion indépendant et non partisan dont les recherches évaluées par des pairs et les analyses fiables incitent les décideurs à innover. Grâce à son réseau mondial de chercheurs pluridisciplinaires et de partenariats stratégiques, le CIGI offre des solutions politiques adaptées à l’ère numérique dans le seul but d’améliorer la vie des gens du monde entier. Le CIGI, dont le siège se trouve à Waterloo, au Canada, bénéficie du soutien du gouvernement du Canada, du gouvernement de l’Ontario et de son fondateur, Jim Balsillie. Copyright © 2023 by the Centre for International Governance Innovation The opinions expressed in this publication are those of the authors and do not necessarily reflect the views of the Centre for International Governance Innovation or its Board of Directors. For publications enquiries, please contact publications@cigionline.org. This work is licensed under a Creative Commons Attribution — Non-commercial — No Derivatives License. To view this license, visit (www.creativecommons.org/licenses/by-nc-nd/3.0/). For re-use or distribution, please include this copyright notice. Centre for International Governance Innovation and CIGI are registered trademarks. 67 Erb Street West Waterloo, ON, Canada N2L 6C2 www.cigionline.org Director, Program Management Dianna English Project Manager Jenny Thiel Senior Publications Editor Jennifer Goyder Publications Editor Susan Bubak Graphic Designer Brooklynn Schwartz Table of Contents vi About the Authors vi Acronyms and Abbreviations 1 Executive Summary 1 Introduction 3 What Is ESG? 4 Why Govern AI Use through an ESG Approach? 5 The World of AI Governance 8 The Nature of AI-Related Risk 11 The Materiality of AI-Related Risk 16 Integrating Material AI-Related Risks into ESG 17 Considerations for a Path Forward 19 Works Cited 20 Appendix About the Authors Mardi Witzel is an associate with NuEnergy.ai and is focused on ESG (environmental, social and corporate governance) and AI governance, and the special challenges facing high-growth firms. She serves on the board of PolyML, a private firm specializing in machine learning and advanced analytics, and has 20 years of experience in not-for-profit board governance, stakeholder engagement and strategic planning. Niraj Bhargava is the CEO and lead faculty at NuEnergy.ai and an expert on artificial intelligence (AI) governance. He leads a team of experts specialized in AI governance education, in the creation of organizationlevel AI governance frameworks and in the integration of NuEnergy’s AI trust measurement software, the Machine Trust Platform. vi Acronyms and Abbreviations AGI artificial general intelligence AI artificial intelligence AIA Algorithmic Impact Assessment AIDA Artificial Intelligence and Data Act AI RMF AI Risk Management Framework CDSB Climate Disclosure Standards Board ESG environmental, social, governance IFRS International Financial Reporting Standards IIRC International Integrated Reporting Council IP intellectual property ISO International Standards Organization ISSB International Sustainability Standards Board IT information technology NGOs non-governmental organizations NIST National Institute of Standards and Technology SASB Sustainability Accounting Standards Board TCFD Task Force on Climate-Related Financial Disclosure VRF Value Reporting Foundation CIGI Papers No. 279 — August 2023 • Mardi Witzel and Niraj Bhargava Executive Summary Artificial intelligence (AI