The alliance between Artificial Intelligence and Sustainability
October 8, 2024
Topic of the week:
According to the study conducted by Raquel Roca, a teacher on digital transformation issues, it is estimated that Artificial intelligence (AI) can help the fulfillment of 79% of the Sustainable Development Goals (SDGs) and up to 93% if we consider only the environmental SDGs, in areas such as selective waste collection, anticipating and preventing climate events, energy transition, protecting biodiversity or smart cities. It’s all well and good to say so, but how do you actually manage to implement this technology in the different sectors?
Before we start talking about this alliance, we must keep in mind that one of the main problems of AI is the energy consumption of data centers, where to give us an idea, the training of an advanced model such as GPT-3, consumed 1287 MWh of electricity, which resulted in 502 tons of CO2 emissions during the year 2021. An amount comparable to the emissions of 112 gasoline-powered cars for a year or to the average consumption of an American household for 120 years.
Ironically in turn, one of the greatest contributions of AI has been in energy efficiency: this technology allows us to anticipate trends and patterns of energy consumption, identifying areas of greater resources, optimizing production, making efficient use of the network and facilities or extending the life of our equipment. Multiple companies such as “Dell Technologies”, a cloud computing company, have committed to using only renewable energy when implementing these models.
Another area where AI is driving efficiency through its ability to analyze vast amounts of data is in waste management. Waste management companies have created “smart” garbage cans used to alert their respective companies when they are full, allowing them to optimize collection routes and save fuel and emissions.
The two main barriers to recycling are not having a garbage can nearby and a lack of sufficient environmental awareness. The AI helps us to identify in which neighborhoods and areas any of these situations are occurring and so we are able to locate those areas in Spain where the garbage is not reaching the correct container, determine the reasons and look for solutions.
In terms of biodiversity conservation, using machine learning techniques, AI can analyze large sets of biological data and generate predictive models to determine the areas of greatest risk and the most effective conservation measures.
From a societal impact point of view, it helps predict demand for emergency services. Logistics companies are showing the potential of AI to improve healthcare delivery in underserved regions, for example by predicting oxygen demand using clinical data.
The implementation of AI could mean the destruction of 2 million jobs over the next 10 years, of which only 400,000 jobs will be lost because according to the latest study by Randstad Research, AI will in turn lead to 1.6 million new occupations.
In the face of all this new power of technology, the inconsistency of the term sustainability could be posed by reducing the number of jobs by replacing them with technology. This raises the challenge of transforming and training those people whose functions will be taken over by this technology; therefore, it is just as important to implement AI to improve sustainability levels as it is to relocate those people who have lost their jobs.
The beacon of the markets:
We closed the third quarter of 2024 on the verge of yearly highs in many of the equity indices, and began the last quarter of the year with the stock markets evolving from less to more. The S&P 500 posted a minimal rise of 0.30%, even higher than the +0.13% of the Nasdaq 100, and both indices recovered the falls accumulated in the first days of the month, especially on Friday afternoon, once the official employment data for the United States were released, which we will comment on later. At closing time, the European stock markets did not have time to digest these data and ended with declines ranging from -2.22% for the Euro Stoxx 50 to -2.58% for the Ibex 35.
The most relevant reaction to the US labor market data was in the debt markets, where the yield on the 10-year Treasury rose 22 bps to close the week at 3.97%, a clear sign that the market could be readjusting its estimates regarding the number and intensity of the next interest rate cuts to be carried out by the Fed, and consequently by the rest of the central banks. In Europe, the increase was not as significant, as the difference between the growth of the US and European economies was reflected in bond yields, with the Bund rising only +7 bps to close the week at +2.21%, and the Spanish Bono +4 bps, which ended the week at +2.97%.
In the alternative markets we saw how gold remained above $2,600/Oz near its all-time highs while Brent which was coming from five weeks of declines rebounded strongly to $78/b, up +9.15% on the week. The increased tension in the Middle East, together with the stimulus measures adopted by the Chinese authorities, favored aggressive oil purchase orders.
What happened to the U.S. labor market? The previous months’ data showed signs of weakness where we saw a clear deterioration in job creation, with wages declining and full-time employment giving way in favor of temporary employment. That trend experienced in the summer months has been truncated by September data showing strong activity, anticipated by private surveys JOLTs and ADP, as more than 250,000 jobs were created compared to the 147,000 expected, accompanied by wages growing at 4% per year compared to an estimated 3.8%. Pending a more detailed breakdown of these data, what is clear is that the US economy continues to be very strong and should be reflected in some very good business data, which we will start to see at the end of the week and which will be the main reference for the markets in the month prior to the US presidential elections.
In Europe, as almost always, the data was in line with expectations, i.e. i) some improvement in the PMIs (the very low levels at which they were leaving little room for worsening), ii) the unemployment rate remains very low at 6.4% and iii) the CPI eased to 1.8% overall and to 2.7% (-0.1%) at the core level. All this has fueled bets of a new interest rate cut by the ECB this October, when it was expected for the months of November and December.
This week will bring little macroeconomic information, with the most important releases in Europe being the ECB minutes and retail sales data. In the US, we will also receive the minutes of the last FOMC meeting, CPI and PPI data, as well as the University of Michigan surveys on consumer confidence and inflation expectations. But on the micro side, we start the third quarter earnings season, which should corroborate the strength shown by macroeconomic data.
The phrase:
And we bid farewell with the following quote from Mother Teresa of Calcutta, a Catholic nun who founded the Missionaries of Charity congregation in Calcutta in 1950: “Always give your best, and the best will come…”.
Summary of the performance of major financial assets (7/10/2024)
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