GDP of Ireland could receive a near €50 billion boost from AI

09 January 2018 Consultancy.uk

Artificial Intelligence could see Ireland’s GDP raised by just under €50 billion in the next 12 years. A new study also finds that the technology could significantly aid both public and private sector productivity, and even boost jobs in the Republic.

A new report from PwC has stated the case for Artificial Intelligence (AI) in Ireland. According to the Big Four professional services firm, AI could add 11.6% - or €48 billion - to Ireland's GDP by 2030. Analysts calculated that this projected impact will be driven largely by the possibility for product enhancements (7.9% of GDP in 2030) to increase productivity. The time saved by intelligent machinery could deliver improved levels of quality and product diversity across all industrial sectors.

While the figures forecast that the potential for AI to impact the Irish economy will be slightly lower than the global average of 13.8% by 2030 ($15.7 trillion), the potential of the technology remains slightly higher than in other Northern European (9.9% by 2030 and $1.8 trillion) and Southern European (11.5% by 2030 and $0.7 trillion) economies. The height of the global average is boosted significantly by regions such as China and Developed Asia, which generally see poor productivity, something that AI could change more radically than in the more mature production culture of Europe and the US.

According to the study, the varied gains between sectors of Ireland’s economy could be as little as 4% or as much as 22% increases in GDP. However, all parts of the market ultimately stand to see some improvement. On top of this, the report suggests that it will not merely be commercial segments, such as the retail, wholesale trade, accommodation and food services sectors that are best positioned to seize on this boon. As is the case across many European economies of Ireland’s scale, the health, education and public services sectors will be most impacted by 2030 – something which will likely be seen as an attractive prospect for public bodies which have suffered from sustained spending cut-backs since the global recession ten years ago.

Total GDP impact of artificial intelligence in Ireland

PwC contends that health, education, public services and arts could see around a 20% boost to their GDP thanks to AI. The research also indicates the highest potential for product enhancements in the health sector, alongside the automotive and financial services sectors. This is in line with several studies which have suggested that the healthcare system of the neighbouring UK would also benefit substantially from the use of AI, with an ageing population currently putting major strain on the NHS.

Augmentation of labour

It would be remise of any document compiled on the potential of automation and AI to ignore the potential impact of technology on jobs. In 2017, a number of studies suggested gloomy outlooks for employment following automation, with one even suggesting that only 19% of jobs lost to AI would be replaced elsewhere. Here, PwC’s study differs, delivering a significantly sunnier forecast for the implementation of innovations.

The adoption of ‘no-human-in-the-loop’ technologies will mean that some jobs will inevitably become redundant, the researchers admitted, but others will be created by the shifts in productivity and consumer demand emanating from AI, and through the value chain of AI itself.

GDP impact of AI by sector in Ireland

Along with jobs in the development and application of AI, the technologies will need to be built, maintained, operated and regulated. In most cases, these jobs will be conducted by humans. This, combined with Ireland’s strong business and regulatory environment, suggests that AI will also lower the number of jobs being outsourced. The increased productivity through augmentation of labour and automation of some roles will also drive gains, but to a lesser extent (3.7% by 2030) when compared to total consumption-side enhancements (7.8% by 2030). While these are lesser benefits, they also stand to increase consumer spending power and, in the long term, to stimulate additional businesses entering the Irish labour market, leading to higher quantities of production, more affordable goods, and at least a neutral impact on jobs in Ireland in the long term, if not a net positive one.

PwC Ireland Digital Director Ronan Fitzpatrick said the "potential size of the AI prize on Ireland’s economy is huge, with significant but varied gains across all sectors, having the potential to transform businesses.”

Fitzpatrick added, "The impact on productivity could be competitively transformational and disruptive. Businesses that fail to apply AI could quickly find themselves being undercut on price and turnaround times, and may lose significant market share as a result."

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Private equity firms ramp up sustainability focus

19 April 2019 Consultancy.uk

In line with business leaders across the industrial gamut, private equity firms are increasingly on board with sustainability projects. According to a new study, the investment arms for major funds are implementing a number of strategies aimed at supporting sustainable economic development in line with global goals.

While the business world has finally begun to acknowledge the danger of climate change, effective action plans remain difficult to achieve. The Paris Agreement has stipulated a clear target for the decades leading up to 2100, although massively reducing emissions while not crashing the economy could be a tall order.

Businesses that are able to acquire capital can use it to boost productivity and output, thereby creating a virtuous cycle of development. However, some businesses are better able to utilise resources than others, both in terms of their relative productivity, as well as the value of the respective outcomes relative to costs (including environmental harms). Financing can therefore provide an avenue to select businesses that are aligned with various global sustainability goals, while shunning those that drive little or unsustainable social value creation.

Top moves made by investment arms towards responsible investment

Profit has for the longest time been the central criterion for investment decisions. Yet profit at any cost is increasingly seen as creating considerable social harms, while often delivering only marginal value. As a result, the private equity sector, which was initially sluggish to change its ways with regards to sustainability, has started to see the topic as an opportunity as much as a challenge.

A new study from PwC has explored how far sustainability goals have become part of the wider investment strategy for private equity (PE) firms. The report is based on analysis of a survey of 162 firms and includes responses from 145 general partners and 38 limited partners.

Maturing sustainability

Top-line results show that responsible investment has become an issue for 91% of respondents. For 81% of respondents, ESG (environmental, social, and corporate governance) was a board matter at least once a year, while 60% said that they already have implemented measures to address human rights issues. Two-thirds have identified and prioritised Sustainable Development goals that are relevant to their investment segments.

Change in concern and action on climate-related topics over time

While there is increasing concern around key issues, from human rights protections to environmental and biodiversity protection, the study finds there are mismatches between concern and action. For instance, concern among investment vehicles around climate change has increased since 2016.

In terms of risks to the PE firm itself, concern has increased from 46% of respondents in 2016 to 58% in the latest survey. However, the number who have taken action remains far below those concerned, at 9% in 2016 and 20% in 2019. Given the relatively broader scope of investment opportunities, portfolio companies face higher risks – and more concern – from PE professionals, at 83% in the latest survey. However, action is less than half of those concerned, at 31%.

Changing climate

In terms of the climate footprint of the portfolio companies, 77% of respondents state concern in the latest survey. 28% of respondents are taking action through the implementation of measures to mitigate their concerns.

Concern and action taken on ESG issues

In terms of the more pressing issues for emerging responsible investment or ESG issues, governance concern of portfolio companies comes in at number one (92% of respondents), while 60% have taken action on it. Firms have focused on improving awareness – setting up policies and a range of training modules for their professionals around responsible investment decision making. Cybersecurity takes the number two spot, with 89% concerned and 41% implementing strategies to mitigate risks.

Climate risks take the number three spot in terms of concern for portfolio companies (83%), but falls behind in terms of action (31%). Health and safety track records are a key concern at 80% of businesses, with 49% implementing action. Gender imbalance within PE firms themselves ranks at 78%, which is being dealt with by 31%. A recent survey from Oliver Wyman showed that there is gender balance at 13% of GP teams in developed countries.

Biodiversity is also an increasingly pertinent topic, with risks from pollution and chemical use increasingly driving wider systematic risks around environmental outcomes. It featured at number eight on the ranking of most likely global risks for the coming decade, with its impact at number six. As it stands, biodiversity is noted as an issue at 57% of firms, with 15% implementing action.