Are businesses in the UK embracing artificial intelligence? And what are they doing to meet net-zero targets? Juliana Oliveira-Cunha, Bruno Serra-Lorenzo and Anna Valero report on how employers believe the two big upheavals of AI and climate change will affect jobs, profits and resilience.

The crises of the 2020s - Covid-19, climate change and the rising cost of living - have provided many challenges for UK firms. But such upheavals can also force productivity- enhancing change in businesses.

For example, two surveys we conducted in collaboration with the Confederation of British Industry (CBI) in 2020 and 2021 found that firms had innovated more as a result of the pandemic (Oliveira-Cunha et al, 2021). Since then, the UK and other economies have experienced an energy crisis hitting businesses and consumers hard; and in response to the climate crisis and net-zero targets, many businesses are accelerating sustainability programmes.

In May 2024, we conducted a new wave of our survey. Our sample of 400 firms includes organisations of all sizes and covers many sectors and regions. We asked firms whether digital technology adopted during the pandemic has had lasting effects. We also enquired about the current and expected uses of artificial intelligence (AI) and what actions businesses are taking as part of the green transition.

In what follows, we report simple unweighted aggregates in the responses; our future research will explore differences across firms and the drivers of adoption of new technology and greener business strategies.

In the long term, more firms expect to benefit from green actions than believe they will be adversely affected

Digital adoption through crises

Our initial results on digital adoption - and in particular AI - shed new light on how firms are using AI in the UK, their motivations for doing so, and current as well as expected impacts. As in our previous survey waves, we find that around two-thirds of firms have adopted new digital technologies since the pandemic, and 70% of these adopters said that this was prompted or accelerated by the pandemic. In fact, nearly a quarter of these firms consider that the pandemic had prompted a continued process of adoption - much higher than the share that considered this to be a one-off change (see Figure 1).

In contrast, and as expected given the different nature of the shock, the energy crisis in general has had no influence on digital adoption, although a larger share of firms say that this crisis has prompted or accelerated digital adoption (17%) than the share that say it has delayed adoption (6%).

Ensuring security

The most commonly adopted digital technologies in the 2020s relate to online sales and marketing, remote work, cloud computing and cybersecurity, where 65%-70% of firms have made investments or plan to (see Figure 2).

AI is less widespread, with only a quarter of firms in our sample stating that they have invested in AI technologiesduring the 2020s, and another 23% saying that they have not yet invested, but plan to do so. These figures seem broadly consistent with Department for Digital, Culture, Media and Sport analysis (DCMS, 2022) although since our survey was more recent, AI adoption is unsurprisingly a little higher.

How are firms using AI?

In recent years, AI has advanced rapidly with the proliferation of generative AI models such as ChatGPT. But there is still widespread debate about the likely economic effects of AI (Baily et al, 2023). Some argue that it will unleash a new era of productivity growth, while others claim it will primarily displace workers and increase inequality. Still others are sceptical, arguing that overall productivity and labour market effects will be a long time coming.

To begin to shed light on these issues, we first sought to understand the extent to which AI use is embedded in different business functions. We find that AI penetration appears highest in information technology, and marketing and sales, where nearly 30% of businesses are using or trialling AI, and 18% have plans to use it. Around 20% of firms say they are using or trialling AI in core business functions such as production, management, administration and engineering activities. So far, AI use appears less widespread in transport and logistics, and facilities maintenance.

Why firms are using AI

A widespread concern in the debate about AI is that it will lead to massive layoffs as firms replace workers with cheaper AI tools. Others argue that AI will make workers more productive by reducing the amount of time spent on procedural tasks, freeing them to focus on more conceptual tasks and therefore augmenting labour. When asked about the reasons for adopting AI, around 20% of firms state that replacing tasks previously carried out by people is a consideration to "some" or to a "great" extent. But twice as many say that creating new or improved processes, or products and services are key considerations (see Figure 3). This suggests that for our sample of firms, we can take a more positive view of AI when it comes to workers.

The impact on profits and jobs

We asked businesses what they consider to be the impacts of AI on turnover, profitability, workforce size, training and overall business resilience. Across all of these areas, we find that the largest share of businesses (around 50%) say that there has been no impact yet. A higher share of firms report positive impacts across these areas, including workforce size (9%) and training (14%), compared with those reporting negative impacts on these outcomes (3% and 4% respectively).

Given that AI use is still at a relatively early stage, we also asked about expected impacts. This reveals that more than 40% of firms expect a positive impact on turnover, profits, training and resilience over the next five to 10 years (see Figure 4). As discussed above, improved profitability could come at the expense of fewer workers. But in our survey about 22% of all firms expect AI to lead to increased employment, compared with 13% who are “jobs pessimists”, although most firms are either unsure or expect AI to have no impact on the number of jobs.

Overall, these results indicate that businesses expect the impacts of AI across all areas to be more positive in the future, and to apply to different areas of business performance. There will perhaps be some labour-replacing activity in some firms, but positive effects in others. Taking the results on profits, workforce size and training together, the overall picture seems consistent with a relatively high share of businesses expecting labour productivity to improve due to AI.

What are the barriers?

A key question for researchers and policymakers is why firms do not adopt technologies and practices that are expected to improve productivity. As in our previous surveys, we asked firms what they consider to be barriers to adoption, both for digital technologies in general, and AI technologies in particular. The results are in Figure 5.

For digital technologies, financing constraints come out top, with 55% of firms citing this as a barrier. Next come a lack of information, skills constraints and policy/technological uncertainty. These constraints seem to matter for AI too, but for AI, a lack of information seems to be a bigger issue, and financing constraints much less so, perhaps reflecting the launch of easily accessed AI-enabled applications in recent years.

Overall, the results appear to reflect a positive view on how AI is being used, and expectations for the future. The barriers to adoption of digital and AI are consistent with previous surveys, but it is also clear that information constraints are more of an issue with AI where technology is developing rapidly, and its applications are not yet fully understood.

A quarter of firms say that they have invested in AI technologies during the 2020s and another 23% plan to do so

Around 9% of firms say AI will increase their workforce; 3% say their workforce will shrink

Saving money, saving the planet

In 2019, the UK became the first advanced economy to make a legal commitment to reducing greenhouse gas emissions to net zero by 2050. Delivering this requires change across sectors. Such change is reflected in our survey, with a third of our sample reporting that they have an environmental sustainability or decarbonisation strategy in place, and another third developing such a strategy.

In our 2021 survey, we found that nearly half of firms reported being more likely to act on net zero since the onset of Covid-19 (a further 50% reported no change). In this wave, we were particularly interested in the impact of the energy crisis. For example, one might expect that high energy costs could have induced more firms to invest in energy efficiency. But it might have also diverted managerial time and resource from making investments in longer-term resilience.

Figure 6 suggests that the former applies - for a substantial share of firms (around 40%), the energy crisis has either accelerated a process of change that was already underway or prompted either a one-off or continued process of change. The majority of firms report that it had no influence, and a small minority (4%) consider that it delayed sustainability actions.

Consistent with the impacts of the energy crisis on sustainability actions, a key motivation for making net-zero changes is improving resource efficiency and saving costs - this consideration was chosen by over 70% of our sample as affecting decisions to improve sustainability to some extent or a great extent. Meeting customer expectations also appears to be important.

We also find that sustainability considerations feature across different areas of business decision-making, perhaps more so when it comes to capital investment, the introduction of new products and services, supply chain relationships and working practices.

In it for the long term

There are many debates about the impacts of net zero on firms. Our work provides evidence of likely benefits for firms that are able to develop clean products and services to serve growing domestic and global demand (Curran et al, 2022), as well as opportunities to improve resource efficiency (Zenghelis et al, 2024) and offer good quality, skilled jobs (Valero, 2024). But it is also clear that the transition requires investment and change, which implies costs that need to be met in the short run.

When asked about the overall impact of net-zero-related changes on different aspects of business performance so far, the majority of our sample state that there has been no impact. While a minority of firms report positive or negative impacts, these are balanced in the case of turnover, profits and size of the workforce. When it comes to workforce training and business resilience, a greater proportion of firms say that there has been a positive impact than report negative effects.

But when asking about expected impacts, the picture changes. For many firms, the transition to sustainable operations is in its early days, so it is worth asking business leaders what they think the effects will be in five to 10 years’ time (see Figure 7). A clear pattern emerges with a larger share of firms expecting positive rather than negative impacts across all areas of business performance and fewer firms anticipating no impacts.

Overall, our results suggest that crises in the 2020s have not led firms to waver when it comes to sustainability actions, and that the energy crisis in particular has prompted or accelerated actions in a large share of firms. The opportunity to improve resource efficiency and save costs is an important driver of change and so are demand-side factors. We find evidence that environmental sustainability features across key areas of business decision-making, including to some extent in digital and skills investments, but the impacts have not yet been felt by most businesses.

More than 60% of firms say lack of information is a barrier to adopting AI

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18 October 2024     Paper Number CEPCP686

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This CentrePiece article is published under the centre's Growth programme.

This publication comes under the following theme: Technology adoption and diffusion