As companies rush to integrate artificial intelligence (AI) into their products and corporate strategies, they are increasingly challenged to do so responsibly and transparently. Beyond the race for innovation, the real test lies in communicating AI’s role without exaggeration—a practice known as “AI-Washing.” Recent guidance from the U.S. Securities and Exchange Commission (SEC) and other regulatory bodies makes clear that transparency, specificity, and board-level oversight are critical to AI-related disclosures. Here is a breakdown of key considerations for companies navigating how they present AI’s impact accurately and effectively.
Tailored & Transparent Disclosures
AI has become a buzzword in corporate communications, but regulators are demanding more than just hype. The SEC’s guidance for Corporate Finance highlights the need for detailed, company-specific AI disclosures. These disclosures should address operational, regulatory, and governance aspects unique to each business, with a particular emphasis on the role of the Board of Directors in overseeing AI initiatives and managing related risks. And for companies with exposure to European markets, it is crucial to account for the EU AI Act, which imposes strict compliance obligations. However, companies should avoid over-disclosing or inflating AI-related risks, as excessive or overly complex information may erode investor confidence and create confusion. Striking a balance between transparency and precision is key to maintaining credibility.
Moreover, one of the systematic risks in AI adoption is the industry-wide reliance on a few dominant platforms or models. Many companies are building their AI capabilities on top of a limited number of base models. This reality calls for transparency about how reliant the company is on these third-party platforms. Companies should disclose not only the benefits but also the risks of their dependence on a narrow group of AI providers. Failure to communicate these dependencies can lead to misaligned investor expectations and heightened vulnerability to external shocks.
“AI-Washing” Languages
As AI discussions become more prevalent in earnings calls and investor presentations, companies must avoid the temptation to overstate AI’s role. “AI-washing” involves presenting AI as a transformative force within the business when, in reality, its impact may be minimal or speculative. Avoiding “AI-washing” means that before making a claim, companies must consider these points:
- Reasonable Basis: Do claims about AI prospects have a reasonable basis? And is that basis disclosed?
- Material Risk Disclosure: Do you provide specific disclosures about material operational, legal, competitive, and other risks related to AI?
- Materiality: Are the AI claims in board meetings, earnings calls, and investor presentations suggest materiality? If so, corollary disclosures in SEC filing may be required.
- AI Definition: What do you mean by AI? Is your AI a third-party product or built in-house?
Keep in mind that companies must align AI disclosures with actual, measurable outcomes. If AI adoption is primarily exploratory, or if its contribution to the business remains marginal, companies should avoid framing it as a game-changer or major growth catalyst. Over-promising in this area can lead to regulatory scrutiny and a loss of investor confidence.
SEC Scrutiny & Crackdown on Misleading AI Disclosures
The SEC has intensified its scrutiny on companies that overstate their AI capabilities, positioning itself as a watchdog against misleading AI claims. This “war” on AI fraud reflects a shift toward stricter enforcement, with recent actions targeting firms that failed to adequately disclose AI-related risks. These cases are part of a broader crackdown on misleading or fraudulent corporate communications.
In this environment, companies must ensure that their AI-related disclosures align with actual capabilities. Claims about AI’s potential should be backed by solid documentation, and material risks need to be clearly identified and disclosed in regulatory filings. Broad or vague statements will not suffice, especially as AI becomes an increasingly material business issue. Consistency is critical—AI disclosures should be treated with the same rigor as any claims about a company’s products or technology. Companies that fail to meet these standards risk not only regulatory penalties but also damaging investor trust.
Shareholders Push for AI Transparency
As AI becomes more central to corporate strategies, its governance is facing increasing scrutiny from investors and regulators. Recent guidance from the Center for Audit Quality emphasizes the necessity for AI governance to go beyond management and involve active oversight from the board of directors. Thus, companies where AI is a material factor must be prepared to address questions about the board and other committee’s involvement in AI risk management. Yet so far, data from the S&P 500 reflects a significant gap: while 35% of companies disclose AI-related risks in their SEC filings, only 9% have established formal board oversight for managing these risks. This gap signals the mounting pressure companies will soon face to implement robust governance frameworks that include accountability mechanisms at the highest levels to ensure AI-related risks are properly identified and managed.
Moreover, the SEC recently signaled its openness to AI-related shareholder proposals under Rule 14a-8, which allows shareholders to submit proposals that must be included in a company’s proxy materials. This move reflects a broader push for corporate accountability in AI governance. For companies expanding their AI efforts, these shifts mean preparing for a future where AI-related shareholder proposals become routine. Companies must proactively engage with these evolving demands, ensuring their disclosures are thorough, accurate, and in line with both regulatory requirements and stakeholder expectations. The era of vague AI statements is ending. Companies must now be prepared to meet the rising standards of transparency and accountability in AI governance.
Gilmartin Group partners with healthcare and life sciences companies to craft compelling strategic messaging that resonates with the investor community. To find out more about how we partner with our clients, please contact our team today.
Authored by: Isabella Luong, Analyst, Gilmartin Group