From ESG to AI: Hype Cycle or Structural Shift in Investing?
Financial markets have always been fertile ground for narratives. Over the years, entire investment frameworks have risen, peaked, and faded—often driven as much by storytelling as by substance. Few examples illustrate this better than the recent trajectory of ESG investing.
A few years ago, ESG was everywhere. Asset managers, funds, and advisory firms rushed to demonstrate alignment with environmental, social, and governance principles. New products were launched, reporting frameworks multiplied, and ESG quickly became a commercial and marketing standard.
Then, almost as quickly, the momentum faded.
The Rise and Cooling of ESG
Today, much of the ESG hype has dissipated. Many ESG-labelled products have been rebranded, consolidated, or quietly discontinued. Investors have shifted their focus, becoming more selective and increasingly sceptical of surface-level claims that lack measurable impact.
This evolution does not mean sustainability has lost relevance. Rather, it highlights a familiar pattern in finance: when a concept becomes primarily a narrative tool instead of an operational discipline, disillusionment follows.
AI Takes Centre Stage
Now, a new theme dominates the conversation: Artificial Intelligence.
From asset managers to analysts and technology providers, AI is being embraced across the investment industry. The enthusiasm is unmistakable. Yet this raises a critical question: is AI simply the next ESG—another hype cycle destined to fade?
Where AI Is Already Changing the Game
Unlike ESG narratives, AI is already delivering tangible applications—particularly in trading and, even more so, in the foreign exchange market.
Machine learning models are increasingly used to:
- Optimize signal detection across complex market environments
- Adapt execution strategies dynamically
- Manage risk exposure in real time
- Process vast volumes of macroeconomic data, news flow, and central bank communications
Some investment strategies now rely on AI-driven systems to interpret market sentiment and anticipate currency movements with a speed and depth that traditional models cannot replicate.
Why AI Is Not a Shortcut
That said, AI is not magic.
Its effectiveness depends on data quality, model governance, and disciplined human oversight. Without these elements, AI risks becoming little more than a sophisticated buzzword—much like ESG did at its peak.
Technology alone does not eliminate risk. It reshapes how risk is identified, measured, and managed.
The Key Difference Between ESG and AI
The crucial distinction lies in utility.
While ESG often struggled to move beyond narrative alignment, AI offers concrete tools that directly influence decision-making processes. It enhances speed, consistency, and analytical depth—but only when embedded within a robust investment framework.
Still, it is too early to declare AI a definitive structural shift. Finance has a long history of turning innovation into storytelling cycles: enthusiasm, saturation, disillusionment, and eventual correction.
A Measured Perspective
AI may indeed reshape how investments are managed—but only if applied with discipline, transparency, and accountability. Otherwise, it risks following the same arc as previous trends.
In investing, technology should serve process—not replace judgment.
Understanding this distinction is what separates durable innovation from temporary hype.
This article is based on a recent market commentary originally published on LinkedIn.
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Read the original LinkedIn post here
Paolo Volpicelli
INCOME CAPITAL MANAGEMENT s.r.o.
