Companies in the consumer goods and retail (CG&R) industry are adopting Artificial intelligence (AI) in their business operations – from client marketing, to human resources, to supply chain management– to boost efficiencies and reduce operational costs. Though sustainability may not always be the initial driver, an organization’s overall sustainability efforts vastly benefit from the efficiencies brought about by AI. While AI brings about a myriad of benefits, it is prudent for companies to be aware of its associated risks. This is one of the issues discussed in our “CG&R and Sustainability Video Chat Series” in which experts provide short, practical insights into some of the legal considerations that companies need to keep in mind when undertaking green innovation.
In the sixth episode of the series, partners Carlos Davila-Peniche and Francesca Gaudino from our IP and data & technology practice discuss the role of AI in innovation through the lenses of “green” AI and AI regulation. It also looks at the interplay between AI and sustainability, the challenges of AI in green innovation, and the key considerations for CG&R companies.
- AI is regarded as a fundamental enabler of green initiatives.
- When developed and harnessed properly, AI has the potential to help achieve sustainability goals.
- As customers increasingly look for better sustainability action from brands and business leaders in this area, CG&R companies should adopt environmentally sound technologies in their operations that embed sustainability at the core.
- Companies should not only consider reducing its environmental footprint derived from AI developments, but should also ensure that AI they develop is transparent, accountable and ethical.
Companies exploring AI solutions should consider sustainability in all stages of the deployment of AI, from its design to production to the management of the solution. The term “green” AI generally refers to AI that is designed while taking into account some sustainable criteria such as computational cost. While AI solutions introduce efficiencies, it is important to examine their whole infrastructure and the overall energy consumption. For example, an AI solution may require significant amounts of energy to operate effectively, thereby increasing carbon costs and creating negative environmental consequences. A holistic approach is required.
AI regulation in Europe
Europe is working on a legislative framework for the development and regulation of AI. In 2018, the European Commission laid down the AI strategy for Europe, clearly underlining the need for specific rules. The High Level Expert Group on Artificial Intelligence released the Ethics Guidelines for Trustworthy AI in 2019, which set out the guidelines and the main attributes of AI. In April 2021, the European Commission issued the first ever legal framework on AI, which is the first attempt the world has seen at creating a uniform legal framework governing the use, development, and marketing of AI. While the EU’s legal framework on AI is the most notable effort on regulating AI to date, there is no clear reference in the regulation on environmental sustainability, which we hope will be addressed by the European Commission as they finalize the text of the regulation. All in all, the AI regulation will likely have a resounding impact on all businesses that use AI for years to come.
Interplay between AI and sustainability
With all its perceived benefits, AI is regarded as a fundamental enabler of green initiatives. When harnessed properly and with sustainability at the core of its development, AI has the potential to help advance and achieve sustainable goals.
To illustrate, the reduction of waste being produced and energy being consumed by companies are important aspects of sustainability. Less waste translates to less energy required for waste disposal. While CG&R companies have visibility over waste and energy consumptions of their own activities, it gets challenging when companies have the added obligation to report and monitor the environmental effects of third-party enterprises in their supply chain. AI tools can help by analyzing information about a company’s suppliers to examine their sustainability practices. And this type of monitoring is no longer just a nice to have, especially as we are seeing the introduction of more and more regulations requiring greater transparency in the reporting of sustainability issues, such as the New York’s Fashion Sustainability and Social Accountability Act.
AI could also be used in analyzing large-scale databases to develop joint actions aimed at preserving the environment. AI advances are able to support the understanding of climate change and the modelling of its possible impacts. AI may help, for example, in streamlining and optimizing business processes. In the fast-paced fashion industry, designers are using AI to help predict consumer trends to ensure that supply is aligned with demand. AI does this by quickly collating information on consumer trends and behavior and informing the manufacturing process in order to reduce any excesses of unwanted fashion lines, as well carbon emissions and wastes associated with the manufacturing process.
Challenges of AI in green innovation and key considerations for CG&R companies
Companies should develop and/or adopt environmentally sound technologies that are sustainable and that have the least negative impact on the environment. Companies should not only consider reducing its environmental footprint derived from AI developments, but should also ensure that AI they develop is transparent, accountable and ethical. With an increasingly knowledgeable consumer base keen to protect their rights to data and privacy and to support sustainability efforts, it is necessary to set adequate policy and legislation frameworks to direct the potential of AI towards the greatest benefit for individuals and the environment. Training and education are also necessary to understand where we stand in terms of AI and its challenges.
For more practical legal insights on key issues affecting consumer goods and retail businesses in incorporating green innovation practices into their operations and strategies, tune into the Baker McKenzie Off the Shelf video chat series.