Commentary: Net Zero and AI Will Shape the Future of Sustainable Investing

[para. 1][para. 3] The global economy is being shaped by two significant trends: the transition to net zero and the emergence of artificial intelligence (AI), both critical to addressing environmental, social, and governance (ESG) concerns across all sectors. Innovation in both technology and finance is essential to mobilize the capital needed for this transition, and China plays a pivotal role in spearheading this progress [para. 2].

[para. 3][para. 5] China is a leader in innovation, which is necessary for the transition to a sustainable economy. As a powerhouse of green technology, China holds a dominant position, accounting for 80% of the global supply chain for solar panels. The country is also the world's largest manufacturer of electric vehicles. Despite this, China is on track to reduce annual emissions, and with its current trajectory in solar and wind energy capacity, it could substantially surpass its renewable energy goals by six years [para. 5][para. 6].

[para. 7][para. 10] The transition to net zero is a global effort, and China's involvement is critical. For sustainable development, investors should consider China's role and invest accordingly to support its progress. The Chinese capital markets present diversification benefits that align with investors' sustainability objectives, offering opportunities in sustainable solutions. UBS promotes its Global Emerging Market Equity Transition Strategy, which combines decarbonization initiatives with the identification of climate solution providers, addressing market disparities and emerging opportunities [para. 10].

[para. 14][para. 15] AI also plays a transformative role in sustainable solutions, intertwined with sustainability in exciting and challenging ways. China's extensive digital market allows AI to be integrated rapidly into the economy. China has already demonstrated this with digital payments and the electrification of passenger vehicles. However, the rapid advancement of AI comes with risks, such as issues of plagiarism, privacy, and information integrity. Companies involved in AI must ensure ethical development and usage to mitigate these risks [para. 16][para. 17][para. 18].

[para. 18][para. 19] For investors, evaluating how companies manage AI adoption is crucial. Effective self-governance in AI usage can help companies avoid regulatory challenges and build user trust. UBS emphasizes the importance of adhering to responsible AI principles, engaging with Chinese tech firms to understand their AI management practices. Chinese companies have been proactive in establishing responsible AI standards, often ahead of their international counterparts [para. 19][para. 20].

[para. 23][para. 25] China's growth in green finance highlights its progress in clean energy and low-carbon transport. In facing the challenges of decarbonization, recognizing the importance of natural capital is crucial. While AI offers potential solutions, it also presents new challenges that need careful management. There is ongoing work to be done to develop innovative investment and financing solutions to achieve sustainable returns [para. 25].

[para. 27] Lucy Thomas, head of sustainable investing at UBS Asset Management, underscores the continued need for partnerships in providing clients with innovative, sustainable investment solutions as part of the global decarbonization journey.