How to regulate AI

Australia’s climate reporting regime is taking shape with important legal issues for directors to navigate, writes Louise Petschler GAICD. The AICD also has governance of AI and a review of the NFP Principles on its agenda. 

Regulating AI

Artificial intelligence and generative AI applications are advancing at a rapid pace, with policymakers and regulators grappling with how — and how much — to regulate this changing space.

Recently, the Australian government released a discussion paper — Safe and Responsible AI in Australia — seeking feedback on regulatory options and risk-based approaches to regulatory gaps. The government wants input on measures to regulate ethical AI and improve public confidence in its deployment across the economy.

While Australian laws on privacy, consumer protection and corporations obviously have applicability, there are unique features of generative AI and machine-learning applications that challenge existing regulatory models.

Regulating fast-changing areas and activity is also, in itself, a huge challenge. Similar issues are being considered across other jurisdictions. In Europe, the European Union Artificial Intelligence Act is in its final stages of legislative passage. Under the proposed law, “high-risk” applications would be assessed prior to market release and continuously monitored. The EU model has been criticised by some European business leaders, who argue that the law will stifle competitiveness and innovation.

In the United States, Senate hearings and department inquiries are in train, and the White House has issued a Blueprint for an AI Bill of Rights. Several US states have enacted legislation either incentivising, or limiting use of generative AI. Canada is considering an Artificial Intelligence and Data Act. Earlier this year, the British government committed to a “light touch, pro-innovation” approach in a consultation paper setting out its regulatory intentions.

While regulatory debates continue, directors and boards will be considering the implications of generative AI for their organisations and pondering governance approaches.

The AICD will release insights and guidance on AI governance to support directors over the coming year.

Climate reporting and regulation

Major changes are on the way on climate reporting, with new global sustainability standards and the framework for mandatory reporting regulation in Australia.

As our feature Mandatory climate and sustainability reporting developments discusses in detail, the International Sustainability Standards Board released global standards on climate and sustainability reporting in late June.

In Australia, Treasury has issued a further consultation paper on the introduction of mandatory climate reporting for organisations, to start for large entities for reporting periods commencing 1 July 2024.

The finalisation of global standards is a major milestone in global efforts to harmonise reporting frameworks and provide more consistent and comparable disclosures to the market.

The AICD supports these standards and recognises that their implementation will represent a generational shift in reporting practice. We also support the introduction of a harmonised, balanced and effective climate reporting regime in Australia, with the aim of quality, comparable disclosures for the market and stakeholders.

On this front, we have been closely engaged with the Australian government’s policy work to introduce mandatory climate reporting in Australia.

AICD advocacy is focused on ensuring that the necessary adjustments to Australian liability settings support comprehensive, good-faith disclosures. With the complexity and volume of reporting likely to be mandated in Australia, there are important legal risks for directors and organisations to navigate.

The inherent uncertainties of forward-looking climate disclosures are not well accommodated in disclosure liability settings and change is necessary. We are consulting with stakeholders and drawing on external advice in making recommendations on these complex legal issues.

Responding to these concerns the Treasury consultation paper proposes that the phased introduction of mandatory climate reporting in Australia would be accompanied by a period of regulator-only enforcement of misleading and deceptive conduct laws for key elements.

In our view, this is an important and targeted measure to support market confidence and best endeavours disclosure.

We will continue to keep members updated on this important policy priority. There will be further consultation on draft legislation and accounting standards in the lead-up to the new regime.

Members can access climate reporting resources on the AICD Climate Governance Initiative website here. 

NFP Governance Principles

The AICD is undertaking a review of its NFP Governance Principles, a highly valued good governance reference for NFP and charity directors and boards.

We are inviting feedback from NFP directors and stakeholders on a discussion paper for the review.

Members can access the discussion paper and the NFP Principles on the AICD’s Not-for-Profit Resource Centre web page here. 

The NFP Principles were last substantially updated in 2019.

Since that time, there have been significant developments in governance issues (such as cybersecurity and climate governance), regulatory and community expectations (including royal commissions and inquiries) and impacts and lessons from the COVID-19 pandemic.

The review will refresh the NFP Principles and is also seeking to simplify the text and introduce more practical case studies. We are grateful to our external director reference group — comprising Virginia Bourke FAICD, Bruce Cowley FAICD and Fiona Payne FAICD — and the AICD’s NFP Chairs’ Forum, which will also provide advice on the review.

The AICD will consult with key stakeholders, including legal experts, relevant industry bodies and government agencies and regulators. We aim to release the updated NFP Governance Principles in the first quarter of 2024.

Please provide your comments by 12 September 2023 to NFPGovernancePrinciples@aicd.com

This article first appeared under the headline 'Regulating AI' in the August 2023 issue of Company Director magazine.