Is AAF fit for today? What should Trustees be considering?
Is AAF fit for today? What should Trustees be considering? AAF 01/20 reports began appearing
The evolving nature of professional trusteeship – AI & ESG
The recent survey by WTW brought together a number of key aspects driving the role of the professional trustee. In many ways it was a tale of diverging paths, typical of what we are seeing here at Pi Partnership. On the one hand, we see a rapidly maturing DB market with a significant number of schemes moving from a board structure to a Sole Trustee model as endgame accelerates; on the other, a move into new member engagement strategies and a focus on how technology will play an increasing role in the delivery of successful retirement outcomes.
We know that stronger funding positions are driving increased focus on pathways to buy-out and settlement, which is also shrinking the long-term pool of ongoing DB schemes. It is interesting that the Regulator is becoming increasingly involved in oversight, recognising the governance benefits of more professionalised structures, while raising concerns about conflicts and independence at a time when the private sector market is moving towards DC dominance.
The impact of the five largest private equity owned firms having nearly 70% of appointments is likely to continue and potentially become even more of a factor with the potential consolidation in the DC Master Trust market.
One aspect that stood out was the finding that most firms are adopting AI, and a third are making the expansion of AI skills a key priority. Whilst it is not surprising that we are seeing this in trusteeship, along with other industries, it does bring out some specific questions for trustees.
Quite rightly through initiatives such as A4S and the wider investment industry, there has been increasing agreement that Trustees should consider climate change in the same way they’d consider any other systemic risk to their scheme and its members. Yet there is currently less focus on the environmental impact of AI, no rewritten ESG policies are appearing. And whilst there is a focus on the potential data risks of AI, there is far less on the potentially devastating environment costs of widespread adoption of AI.
A recent report by the UN highlighted that data centres, the global infrastructure powering AI, could consume 945 terawatt-hours of electricity annually by 2030. Every unit of electricity used by data centres also carries a “water footprint” for cooling and energy production, and a “land footprint” associated with power generation and supply chains. The study also found that day-to-day usage accounts for roughly 80-90% of total energy demand.
It will be disappointing if the trustee industry, having led the way on so many environmental initiatives, doesn’t also take a lead on ensuring AI environmental consequences are at the forefront of AI skills training.
AI’s environmental costs threaten water, land and climate | UN News
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