In a groundbreaking move, central bankers unveiled on Tuesday the utilization of artificial intelligence (AI) to gather data crucial for evaluating climate-related financial risks. This development comes as the flow of disclosures from banks and corporations is poised to escalate, Reuters news report said.
The Bank for International Settlements (BIS), acting as a pivotal forum for central banks, alongside the Bank of Spain, Germany’s Bundesbank, and the European Central Bank (ECB), introduced their experimental Gaia AI project. Gaia was deployed to scrutinize company disclosures concerning carbon emissions, green bond issuance, and voluntary net-zero commitments.
Regulators overseeing banks, insurers, and asset managers emphasize the necessity of high-quality data to gauge the impact of climate change on financial institutions. Yet, the absence of a unified reporting standard leaves them grappling with a mosaic of public information scattered across textual narratives, tables, and footnotes within annual reports.
Addressing this challenge, the central banks hailed Gaia’s ability to transcend disparities in definitions and disclosure frameworks across various jurisdictions, thereby offering indispensable transparency. Gaia facilitates the comparison of indicators on climate-related financial risks, as highlighted in a joint statement by the central banks.
Crucially, Gaia’s approach revolves around understanding the essence of each indicator rather than fixating on how the data is categorized. This departure from traditional methodologies streamlines the process of incorporating additional key performance indicators (KPIs) and institutions for analysis.
According to the central banks, Gaia’s agility facilitates the swift and effortless inclusion of new KPIs or institutions, enabling the extraction and analysis of a plethora of KPIs from a vast array of institutions. This scalability promises a paradigm shift, enabling climate risk analysis on a scale previously deemed unattainable.
With new mandatory climate-related disclosures looming under global, U.S., and European Union regulations, listed companies, including banks and insurers, are poised to provide more comprehensive information compared to prior voluntary approaches.
Gaia’s comprehensive analysis spanned 20 key indicators across 187 financial institutions over five years, encompassing documents primarily in English, with a minority in Spanish and German. The findings underscored a growing trend among financial firms towards committing to net-zero targets and issuing green bonds, albeit with regional variations.
The flexible design of Gaia has been lauded as a potential model for AI-enabled applications across a broader spectrum of use cases within central banks and the financial sector at large.
Looking ahead, the central banks contemplate making Gaia publicly accessible as an open web-based service for analysts, indicating a potential leap forward in harnessing AI for climate risk assessment.
