Crescent moon, coast is clear
Taylor Swift, when asked about the future of AI in financial services
Spring breaks loose, but so does fear
AI’s gonna burn this house to the ground
AI is revolutionising financial services, making compliance smarter, risk management more efficient, and customer experiences more personalised. But this technological leap comes with an environmental cost that is increasing every day. As ASIC continues to emphasise the role of technology and AI in compliance, Australian Financial Services Licensees and Advisers must also consider the impact of their digital strategies on sustainability.
In previous articles, we’ve discussed AI’s numerous costs and benefits, from privacy to efficiency to how [complye] is thoughtfully integrating AI into RegTech. You should definitely read those articles (they’re linked below), but finish this one first!
In all the discussions currently going on, the environmental impacts of AI have largely been ignored. Don’t worry about that; I’m here to give you a friendly reminder that our actions have consequences (sorry)!
Despite the way this doom-and-gloom piece sounds, I can appreciate that AI can be really useful and has changed the financial services landscape permanently; I value a second opinion on an important email as much as the next person. As we all know, informed consent is of the utmost importance.
As such, I hereby bestow upon you information about the Green Cost of Artificial Intelligence in Financial Services. Proceed at your own risk.
The Double-Edged Sword of AI in Financial Services
AI applications in financial services have delivered significant benefits. Compliance monitoring powered by AI can detect fraud in real time. Automated risk assessments improve governance and reduce human error. AI-driven chatbots streamline client interactions, providing instant responses that enhance customer satisfaction. Yet, behind these innovations lies a hidden environmental toll. AI requires immense computing power. Training a single large AI model can generate as much carbon dioxide as five cars do over their lifetimes, and a single ChatGPT request uses 10x the electricity of a Google Search. Data centres, the backbone of AI infrastructure, consume vast amounts of electricity and water to run and cool the system. We’re talking about around 5 billion cubic metres of water, about six times as much water as Denmark consumes (or half of the UK). Current estimates suggest that by 2026, electricity consumption by AI and their associated systems would be equivalent to the energy demands of Japan. There are more confronting facts about AI’s energy consumption, but you see the point; this is a growing area of use that has the potential to strain already struggling systems (eco and otherwise)!
ASIC has declared its expectations: AI must be used “in a safe and responsible manner”. Despite this, around 60% of licensees plan on increasing their use of AI systems, even though around half of all licensees don’t have comprehensive AI policies addressing fairness, bias, or disclosure (24-238MR).
ASIC also hasn’t explicitly addressed the environmental impacts of AI in their communications to licensees. Still, given that we already have access to the Australian AI Ethics Principles, ASIC’s Emissions Reduction Plan, the new climate reporting requirements and greenwashing enforcement actions, we can safely assume that these worlds will collide for AFS licensees at some point (probably soon). Luckily, we have time and inspiration for how to address AI in our own work.
In addition to thinking about AI and the environment because we’re good global citizens, ESG is worth thinking about because clients increasingly value it.
ESG-focused funds are growing in popularity, and green finance initiatives are shaping the future of investment strategies. Incorporating AI disclosures and discussion in your ESG methodologies and communications can help position your business at the forefront of sustainable and values-driven financial services.
AI and Sustainability: AFS Licensees’ Path Forward
AFSLs need to find a way to balance the efficiency of AI with sustainability concerns. Here’s how:
- Optimising AI Energy Consumption: Choosing AI models that require less computing power can significantly reduce emissions. Limited data on energy consumption exists currently, but it is still important to watch as developers begin to share information that can be used for decision-making.
- Sustainable Cloud Providers: Partnering with cloud service providers committed to renewable energy can mitigate AI’s carbon footprint. Green cloud computing is on the rise, and many leading providers now offer green data solutions that align with ESG goals.
- Transparency and Accountability: AFSLs should disclose the environmental impact of their AI use in their ESG reporting (and, more generally, any use of AI should be disclosed). Clients and investors value transparency and want to know that sustainability commitments are genuine, and not just greenwashing.
- Regulatory Alignment: Staying ahead of ASIC’s guidance on technology and sustainability ensures that firms remain compliant while developing sustainable AI practices.
Practical Steps for AFS Licensees
Before you rush to implement that shiny new AI-powered compliance system, consider these practical steps:
- Audit Your AI Footprint
- Measure current technology energy consumption
- Understand the carbon footprint of proposed AI solutions
- Document environmental impact in your risk assessments
- Smart Implementation Strategies
- Use edge computing (storing and processing data near you) where possible
- Choose cloud providers with documented renewable energy commitments
- Regulatory Documentation
- Include environmental impact in your compliance framework
- Document how AI decisions align with ESG commitments
- Maintain records of energy efficiency measures
The Real Bottom Line
Let’s be honest: Most firms aren’t thinking about the environmental impact of their AI systems.
They’re focused on efficiency gains, cost savings, real-time therapy, and regulatory compliance.
But here’s the reality: environmental considerations in AI implementation aren’t just a “nice to have”—they’re becoming a business imperative.
ASIC’s recent focus on greenwashing tells us everything we need to know about the direction of travel. It’s only a matter of time before the regulator starts asking questions about the environmental impact of your technology choices.
Lost your balance on a tightrope, oh
Innocent (Taylor’s Version), Speak Now
It’s never too late to get it back
The Way Forward
The solution isn’t to abandon AI (that ship sailed long ago). Instead, AFS Licensees should:
- Choose AI solutions with demonstrated energy efficiency (or, at least, transparent energy usage data)
- Partner with environmentally conscious technology providers
- Build environmental considerations into technology governance frameworks
- Document and report on AI’s environmental impact
Remember, ASIC expects licensees to have adequate risk management systems. In 2025 and beyond, that increasingly means considering the environmental impact of your technology choices.
The regulator might not explicitly ask about it today, but smart compliance officers are already preparing for tomorrow’s questions. The inconvenient truth is that AI in financial services isn’t just a technology or compliance issue—it’s an environmental one. In an era where ESG considerations are paramount and AI is taking over the world, none of us can afford to ignore this (and why would we want to – wrestling with ethical dilemmas is the spice of life).
TLDR: It’s complicated! For a knowledgeable compliance partner on your ethical AI journey, contact the team at Assured Support today.
If you enjoyed the article (or are fact-checking my claims of linking existing works), here are some further readings:
- AI-Driven Compliance: Transforming Risk Management and Regulatory Oversight
- The Hidden Risks of AI: ASIC’s Review of Licensees’ Embrace of Artificial Intelligence
- Guide for Advisers and Licensees: Navigating AI in Financial Services
- Six Prompts for Shaping GenAI for Financial Services
- Avoid the AI Trap: How to Stay Compliant & Ahead of the Game
Frequently Asked Questions
1. What is the environmental impact of using AI in financial services?
AI in financial services consumes vast amounts of energy and water, with data centres responsible for high carbon emissions. Training large AI models can emit as much carbon dioxide as five cars over their lifetime, and single AI queries may use up to 10x more electricity than a typical web search.
2. How can AFS Licensees reduce the carbon footprint of AI systems?
AFS Licensees can reduce AI’s environmental impact by selecting energy-efficient models, partnering with cloud providers using renewable energy, implementing edge computing, and actively monitoring their AI-related energy use and emissions.
3. Does ASIC require financial firms to report on AI’s environmental impact?
While ASIC hasn’t explicitly mandated environmental disclosures for AI use, existing ESG frameworks, climate reporting requirements, and ASIC’s focus on greenwashing suggest that environmental accountability in AI deployment will soon become a compliance expectation.
4. Why should financial services firms include AI in their ESG strategy?
Including AI usage in ESG reporting shows transparency and positions firms as forward-thinking and responsible. Investors and clients increasingly seek ESG-aligned partners, and disclosing AI’s environmental impact supports sustainable finance goals.
5. What steps can financial firms take to implement AI responsibly and sustainably?
Firms should audit current AI systems, document environmental impacts, adopt green cloud solutions, and align their AI strategies with ESG principles and ASIC guidelines to ensure responsible innovation and future regulatory compliance.
