UK pensions manager Railpen has partnered with sustainability consultancy Chronos Sustainability for a report on “how AI systems are classified and the risks they could pose to portfolio companies without an effective and efficient system of governance.”
The report is intended as a resource for investors in the face of the rollout of the EU AI Act laying out rules for how AI can be built and used, aiming to keep it safe, transparent and fair. According to Railpen: “The report helps investors understand the significance of AI to their portfolios and provides guidance on how to work with portfolio companies to both manage AI risks and harness its benefits.”
To assist investors in assessing the materiality of AI risks, the publication introduces the AI Governance Framework (AIGF). The framework translates responsible AI principles into practices under four pillars: governance, strategy, risk management and performance reporting.
Railpen cited that in 2024, 72% of companies had adopted AI in at least one business function, while more than 60% of S&P companies reported material AI-related risks.
Railpen and RLAM issue cybersecurity guidance for investors
The report recommends investors conduct high-level AI risk assessments across their portfolios, engage with priority companies using the AIGF and associated disclosure guidance, and participate in policy advocacy on responsible AI to ensure investor perspectives inform regulation.
The publication follows earlier joint guidance from Railpen and Royal London Asset Management on cybersecurity risk and resilience.
Caroline Escott, co-head of sustainable ownership and head of investment stewardship at Railpen, commented: “As a long-term investor and a universal owner of assets, we have a duty to members to understand and act upon evolving risks and opportunities that could affect our portfolio companies as well as the wider health of the economy and financial markets. We recognise the significant long-term opportunities presented by AI and this is reflected in the investments that we have made across our real assets and equity strategies.
However, as AI adoption becomes mainstream in business practices, we are seeing AI-related incidents and controversies steadily increase. It is therefore critical for us to continue engaging with our portfolio companies on AI risks and we are calling on other investors to do the same.”
Dr Rory Sullivan, CEO at Chronos Sustainability, said: “We are pleased to have partnered with Railpen on this report which makes plain the systemic risk that AI can pose, alongside the significant opportunities it presents. We urge investors not only to take note, but to take action – leveraging this framework to engage proactively with businesses and drive effective AI governance across sectors.”
