AI might be changing the way we work, but it can also change the way we think about where we invest our money.
If you’re uncomfortable with some of the ways AI is being developed or used – whether that’s the environmental cost, copyright, job displacement, surveillance or military applications – you might not want to own the companies behind it.
The problem is working out what that actually means for your portfolio. AI isn’t confined to a handful of tech companies, so avoiding it can be much harder than simply selling an AI-themed ETF.
That said, there are ways to assess your exposure and reduce it if you choose to.
Start with your own line in the sand
There’s no single definition of what makes an investment “AI-related”.
You might not want to own companies developing generative AI, for example, but be perfectly comfortable with a healthcare company using AI to analyse medical images.
Or perhaps your concern is about surveillance, facial recognition or military applications. You might have no problem owning a company that supplies the chips or cloud computing those systems use.
You could decide to avoid:
- Companies developing foundation models
- Businesses generating significant revenue from AI products
- Semiconductor and infrastructure suppliers
- Defence and surveillance applications
- Facial recognition and other high-risk uses
- Companies using AI internally
- Businesses supplying electricity, data centres or other infrastructure to the AI industry
There’s no right answer here. The point is to work out which connections actually matter to you.
That’s important because a very broad definition can quickly take you well beyond a few technology stocks. It can change the countries, sectors, currencies and investment factors represented in your portfolio, too.
An ethical ETF won’t necessarily solve the problem
It might seem like an ethical or ESG ETF is the obvious answer if you don’t want to invest in AI.
But “ethical” doesn’t mean the same thing from one fund to another. One fund might exclude tobacco, gambling, weapons and fossil fuels while still owning large technology companies. Another might use environmental or governance scores to choose companies without specifically screening for AI. So an ethical fund can still contain companies you’re trying to avoid.
Look at the methodology rather than the name. Check what the fund excludes, whether it uses revenue thresholds and what happens when a company has only part of its business exposed to an activity.
The same applies to active funds. Some managers may prefer to remain invested in a company and engage with its management rather than sell it. That’s a different ethical approach from exclusion, and neither is necessarily going to give you the portfolio you have in mind.
You might need to look further than the obvious companies
Once you’ve decided what you don’t want to support, go through your investments. Don’t just look at the fund’s name or its top 10 holdings. Download the full holdings and look for companies that fall within your own definition.
Revenue thresholds are particularly important. A fund might exclude a company when a certain percentage of its revenue comes from an activity, meaning a company with a smaller involvement can still be included.
It’s also worth looking at how the underlying index is constructed. This will tell you how companies are assessed and excluded, while checking how often the index is rebalanced can give you an idea of how frequently those holdings may change.
And don’t assume AI exposure will always be obvious from the company name or sector. A semiconductor manufacturer, data-centre operator or electricity provider might benefit from the growth of AI without developing an AI product itself. Equally, a company outside the technology sector might be using AI throughout its business.
What if you find something you don’t want to own?
Finding a company you don’t want to support doesn’t necessarily mean you have to sell it that day. You could stop buying it and redirect future contributions elsewhere. Over time, that will reduce its share of the portfolio without creating an immediate sale. If you’re using Pearler Automate, you could change your investment instructions once you’ve decided where you want future contributions to go.
You could also gradually rebalance the portfolio, reducing the holding over a number of transactions rather than selling everything at once. Or you could sell and replace it if you want to make a clean break.
The choice partly comes down to how strongly you feel about the issue. It also comes down to the financial consequences of making the change. Selling an investment can trigger capital gains tax, brokerage and spreads, so it’s worth considering those before making a move.
What do you put your money into instead?
This is where values-based investing can get complicated.
There isn’t a neat list of “good” investments that have nothing to do with AI. You could look at smaller companies, value strategies, healthcare, listed infrastructure, climate-transition funds, bonds or cash, depending on the rest of your portfolio and your investment goals.
But the same questions apply to those investments. A clean-energy fund might invest in companies dependent on mining and complex supply chains. A healthcare company might use AI extensively. A company that doesn’t develop AI could still supply the infrastructure that allows it to operate.
That doesn’t automatically make those investments unacceptable. It just means that ethical investing usually involves deciding which issues you’re prepared to accept and which ones you aren’t.
Don’t lose sight of the investment itself
There’s also a financial question sitting alongside the ethical one.
Selling a company because you don’t want to support its activities may feel straightforward, but replacing it with something else can change the risk and diversification of your portfolio. You could end up with more exposure to particular countries, sectors or individual companies. The replacement fund might also charge higher fees.
And if you’re selling investments that have risen in value, there may be a capital gains tax bill to consider.
None of that means you shouldn’t make the change. It just means the ethical decision and the investment decision are connected.
Write down what you actually believe
If this is something you care about, it can be useful to write down your own rules before you start changing your portfolio.
For example:
- What uses of AI do I object to?
- Do I want to avoid companies completely or just reduce my exposure?
- Am I comfortable owning companies that supply AI infrastructure?
- What about companies that use AI in their own operations?
- How much revenue from an activity is too much?
- Would I rather exclude a company or remain invested and engage with it?
- How much tax and transaction cost am I prepared to accept?
- How often will I review the policy?
You may change your mind over time. That’s fine. Having the rules written down simply gives you something to refer back to when a company launches a new AI product or the next big development makes the news.
You don’t need to find a perfectly “clean” portfolio
The more closely you look at the supply chain behind AI, the harder it becomes to draw a completely clean line.
The technology relies on chips, cloud computing, data centres, electricity and telecommunications. Meanwhile, businesses across the economy are incorporating AI into their products and operations. For some investors, that will make complete exclusion impractical.
But you don’t have to choose between owning everything and owning nothing. You can decide which uses or parts of the AI industry you don’t want your money supporting, check your investments against those rules and make changes where they matter to you.
Your portfolio may still have some connection to AI. The difference is that you’ve decided where your own line is, rather than assuming an “ethical” label has made the decision for you.
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This article contains general information only and does not constitute personal financial, tax or legal advice. It does not recommend any particular ETF, fund, security or divestment strategy. Ethical definitions are subjective, and fund holdings and methodologies change. Read current disclosure documents and consider obtaining advice from an appropriately licensed financial adviser and registered tax agent before changing a portfolio.
