Climate change can transform our global economy, but the finance industry continues to fall behind in terms of implementing the necessary measures to tackle climate change. Representatives at the conference on climate finance in New York stated that to enhance the rate of progress, the industry must take advantage of new technology, particularly artificial intelligence and machine learning.
Discussions on the progression of data and AI, particularly the advancements in gathering satellite-based data, highlighted the information collected in our world. When examining this data via tools such as machine learning, we can explore multiple trends and patterns on our planet. The high-quality data can enable global markets to assess the short and long-term climate risks and opportunities, from understanding the value of the services nature provides to determining what areas influence the climate resilience of investment plans.
How does AI support the finance industry and understands the value of nature?
Some industry experts believe the finance industry currently fails to acknowledge the value of the ecosystem before certain parts convert into assets. In today’s world, we have organisations with clear economic values, whereas nature has no intrinsic economic value until the trees are cut down and converted into productive assets. Businesses can harness data which recognises these critical parts of nature i.e. the water, carbon, biodiversity and other associated services. These variables can then be integrated into the finance industry and future strategic plans.
How to incorporate these values into future financial plans
This critical information can enable a range of decisions for finance-related businesses. Companies can, for example, identify methane emissions detection down to a specific facility in real-time. This information can determine certain facilities that are impacting the environment. Investors and other interested groups can see the level of methane emissions coming from their investments. If that figure exceeds an emission target, the investor may need to sell off an asset or encourage the facility manager to reduce emissions. If it is affordable to detect these emissions, we can make it very expensive to ignore this data.
In contrast, being capable of determining areas or facilities that are doing a positive job in terms of carbon reductions can trigger higher investments. A bank may decide on additional financing for a business with a lower carbon footprint due to lower legal liability risk and enhanced public perception.
Combining two of the most powerful industries, technology and finance, could transform the level of progress on climate change. Delivering significant transparency in global capital markets has considerable potential for bother industries and how they decide to approach climate action.
Today is the time for tech and finance to collaborate and deliver the necessary changes. The challenges are severe, but we are equipped with better tools and continue innovating with new technologies.