Climate: Central banks use AI to assess risks – 03/19/2024 – Market

Central bank chiefs said on Tuesday (19) that new avenues have been opened to use artificial intelligence to collect data and assess climate-related financial risks.

The Bank for International Settlements (BIS), a forum of central banks, plus the Bank of Spain, Germany’s Bundesbank and the European Central Bank said their experimental AI project called Gaia was used to analyze companies’ emissions disclosures. carbon emissions, issuance of green bonds and carbon neutrality commitments.

Central banks, which regulate commercial banks, insurers and asset managers, need high-quality data to assess the impact of climate change on financial institutions.

However, the absence of a single reporting standard leaves them with a patchwork of public information spread across text, tables and footnotes in annual reports.

The Gaia tool was able to overcome differences in definitions and disclosure frameworks between jurisdictions to provide much-needed transparency and facilitate the comparison of indicators on climate-related financial risks, the central banks said in a joint statement.

Despite variations in the way the same data is reported by companies, Gaia focuses on the definition of each indicator, and not on the way the data is labeled.

Furthermore, with the traditional approach, each additional key performance indicator, or KPI, and each new institution requires the analyst to look for information in public corporate reports or contact the institution for information.

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

Listed companies, including banks and insurers, face new mandatory climate-related disclosures under new global, US and EU rules, which will lead to more detailed information compared to voluntary approaches to date.

Gaia analyzed 20 key indicators from 187 financial institutions over five years from documents in English and a small number in Spanish and German.

The results showed that more financial companies are committing to net-zero emissions targets and issuing green bonds, but not uniformly across the world.

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

Central banks said a possible next step would be to make Gaia publicly available as an open web-based service for analysts.