The Rise of Generative AI In SEC Filings, a report issued by Arize AI, a software provider, finds that in 2024 almost two-thirds (323 companies) of the Fortune 500 mention artificial intelligence (AI) in their annual report on Form 10-K and more than half (281 companies) have a risk factor citing AI. These disclosures have mushroomed over the past two years: The number of Fortune 500 companies mentioning AI has increased 250.1 percent and risk factors citing AI have risen 473.5 percent.
As to generative AI (genAI) specifically, about eleven percent of the Fortune 500 mention genAI in their current Form 10-K. Of those 108 companies, 75 refer to genAI only in their risk factors, while nine refer to it only in terms of potential benefits. Twenty-four companies discuss both risks and benefits.
Not surprisingly, the frequency of AI disclosures varies by industry. Media and Entertainment, Financial Services, and Software and Technology companies have the highest percentage of companies disclosing AI risks. The filings of companies in Software and Technology and Financial Services are the most likely to mention genAI.
Arize AI finds that genAI risk factors fall into four categories:
Competitive Risks. Failing to keep pace with competitors or achieve AI goals.
General Harms. Physical, reputational, or other harms to the company or its stakeholders from AI, often touching on AI fairness or responsible use of AI.
Regulatory Risks. Regulation of AI upending data pipelines or business lines relying on machine learning.
Security Risks. Data leakage or heightened cybersecurity risks.
The Arize AI report includes examples from Fortune 500 filings of each type of risk factor disclosure. The report also includes examples of disclosures discussing the benefits or industry implications of genAI.
Audit committees may want to consider whether there are material risks associated with either the company or its competitors deploying AI, especially genAI, and, if so, whether those risks are appropriately disclosed. This issue may warrant particular attention if the company, as is apparently the case for some Fortune 500 filers, discusses the potential benefits of AI in its Form 10-K or other public documents, but is silent as to risks. While not involving risk factor disclosure, the SEC recently brought its first action against a public company for “AI washing” – overstated, misleading , or false claims about the company’s AI capabilities or potential. See SEC press release on SEC v. Ilit Raz. It seems likely that AI disclosure will be a continuing area of SEC focus.
Комментарии