In short
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 improve efficiency and reduce operating costs. Although sustainability may not always be the primary driver, the organization’s overall sustainability efforts benefit greatly from the efficiencies that AI brings. While AI brings many 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” where experts provide brief, practical insights into some of the legal considerations that companies should keep in mind when making 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 considered a fundamental enabler of green initiatives.
- When developed and used correctly, AI has the potential to help achieve sustainability goals.
- As customers increasingly look for better sustainability actions from brands and business leaders in this area, CG&R companies must adopt environmentally sound technologies in their operations that place to continue the core.
- Companies must not only consider reducing the environmental footprints derived from AI developments, but must also ensure that the AI they develop is transparent, accountable and ethical.
Companies exploring AI solutions must consider sustainability at all stages of AI deployment, from its design to production to solution management. The term “green” AI generally refers to AI designed while taking into account certain sustainable criteria such as computational cost. As AI solutions introduce efficiencies, it is important to examine their entire infrastructure and overall energy consumption. For example, an AI solution may require large amounts of energy to operate effectively, thereby increasing carbon costs and creating negative environmental consequences. A holistic approach is needed.
AI regulation in Europe
Europe is working on a legislative framework for the development and regulation of AI. In 2018, the European Commission laid out the AI strategy for Europe, which clearly emphasizes the need for specific rules. The High Level Expert Group on Artificial Intelligence released the Ethics Guidelines for Trustworthy AI in 2019, which outlines the guidelines and the main attributes of AI. In April 2021, the European Commission issued the first ever AI legal framework, which is the first attempt the world has seen to create a coherent legal framework governing use, development, and marketing. in AI. While the EU legal framework on AI is the most notable effort to regulate AI to date, there is no clear reference to environmental sustainability regulation, which we hope the European Commission will address as they finalize the text in regulation. Overall, AI regulation is likely to have a significant impact on all businesses that use AI in the coming years.
Interplay between AI and sustainability
With all the known benefits, AI is considered a fundamental enabler of green initiatives. When used properly and with sustainability at the core of its development, AI has the potential to help progress and achieve sustainable goals.
To illustrate, reducing the waste produced and energy used by companies is an important aspect of sustainability. Less waste translates to less energy needed for waste disposal. While CG&R companies have visibility of waste and energy consumption in their own activities, this can be challenging if companies have additional obligations to report and monitor the environmental impacts of third-party businesses in their supply chain. AI tools can help by analyzing information about a company’s suppliers to assess their sustainability practices. And this kind of monitoring is no longer a nice thing to have, especially as we see the introduction of more regulations that require more transparency in reporting on sustainability issues, such as the Fashion Sustainability and Social Accountability Act in New York.
AI can also be used to analyze large databases to create joint actions aimed at preserving the environment. Advances in AI can support the understanding of climate change and the modeling of its possible impacts. AI can help, for example, to streamline and optimize business processes. In the fast fashion industry, designers are using AI to help predict consumer trends to ensure supply matches demand. AI does this by quickly gathering information on consumer trends and behavior and informing the manufacturing process to reduce any excess in unwanted fashion lines, as well as carbon emissions and waste. which is involved in the manufacturing process.
AI challenges in green innovation and key considerations for CG&R companies
Companies must develop and/or adopt environmentally sound technologies that are sustainable and have the least negative impact on the environment. Companies must not only consider reducing the environmental footprints derived from AI developments, but must also ensure that the AI they develop is transparent, accountable and ethical. With a growing knowledge base of consumers seeking to protect their data and privacy rights and to support sustainability efforts, it is necessary to set adequate policy and legislative frameworks to direct the potential of AI towards the most great benefit for individuals and the environment. Training and education are also needed to understand where we stand in terms of AI and its challenges.
For a more practical legal understanding of the 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.
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