Central bankers announced on Tuesday that, at a time when the volume of disclosures from banks and other corporations is expected to increase, they have achieved a first by utilising artificial intelligence to gather data for evaluating climate-related financial risks.

The experimental Gaia AI project of the Bank for International Settlements, a forum for central banks, the Bank of Spain, the Bundesbank of Germany, and the European Central Bank was used to assess company disclosures on carbon emissions, voluntary net-zero promises, and the issuing of green bonds.

High-quality data is necessary for regulators overseeing banks, insurers, and asset managers to evaluate how climate change is affecting financial institutions. But instead of having a uniform reporting standard, annual reports present them with a disorganised collection of publicly available data dispersed throughout the text, tables, and footnotes.

The central banks stated in a joint statement that Gaia has been able to overcome variations in definitions and disclosure procedures across jurisdictions to provide much-needed transparency and facilitate the comparison of indicators on climate-related financial risks.

While firms may report the same data differently, Gaia focuses on the meaning of each indication rather than the labelling of the data.

Moreover, the conventional method necessitates that the analyst look for the data in publicly available business reports or get in touch with the institution for any new key performance indicator, or KPI, and institution.

“With Gaia, adding new KPIs or new institutions is quick and easy. This makes it possible to extract and analyse a multitude of KPIs from a large number of institutions, opening up the possibility of climate risk analysis at a scale that was previously unimaginable.”

Under new worldwide, US, and EU regulations, listed companies—including banks and insurers—must make required disclosures about climate change. This will result in more thorough information than under the previous voluntary procedures.

Over a five-year period, Gaia examined 20 key variables for 187 financial institutions from papers primarily in English, with a tiny amount also in Spanish and German.

The findings demonstrated that while more financial institutions are pledging to achieve net zero goals and issue green bonds, this is not happening globally.

“The flexible design may serve as a model for AI-enabled applications in a broader range of use cases for central banks and the financial sector.”

The central banks stated that opening up Gaia as an open online service for analysts to use would be one potential next step.

(Adapted from ThePrint.in)

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