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Central banks employ AI to identify climate-related risks

Smoke and steam billow from Belchatow Power Station, Europe's biggest coal-fired power plant fuelled by lignite, owned by Polish utility PGE, in Rogowiec, Poland, November 22, 2023

LONDON, March 19 (mod1s) - Central bankers said on Tuesday they had broken new ground by employing artificial intelligence to gather data for analyzing climate-related financial risks, just as the amount of disclosures from banks and other firms is poised to surge.
The Bank for International Settlements, a forum for central banks, the Bank of Spain, Germany's Bundesbank and the European Central Bank stated their experimental Gaia AI project was used to assess firm declarations on carbon emissions, green bond issuance and voluntary net-zero promises.

Regulators of banks, insurers and asset managers require high-quality data to evaluate the effect of climate-change on financial institutions. However, the lack of a uniform reporting standard presents them with a patchwork of public information distributed over text, tables and footnotes in annual reports.
Gaia was able to overcome disparities in definitions and disclosure procedures across countries to deliver much-needed openness, and make it simpler to evaluate indications on climate-related financial risks, the central banks said in a joint statement.

Despite variances in how the same data is provided by firms, Gaia focuses on the definition of each indication, rather than how the data is labeled.
Furthermore, using the old technique, each additional key performance indicator, or KPI, and each new institution needs the analyst to either seek for the information in public corporate reports or contact the institution for information.

"With Gaia, adding new KPIs or additional institutions is simple and straightforward. This makes it feasible to collect and assess a multiplicity of KPIs from a huge number of institutions, bringing up the prospect of climate risk analysis at a scale that was previously impossible."
Listed corporations, including banks and insurers, face new required climate-related disclosures under new worldwide, U.S. and European Union requirements, which will lead to more extensive information, compared with the voluntary methods to date.

Gaia looked examined 20 important variables for 187 financial organizations over five years from papers in English and a limited number in Spanish and German.
The data indicated how more financial businesses are committing to net zero aims and issuing green bonds, but not in a consistent fashion around the world.
"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 indicated that one potential next step would be to make Gaia publicly accessible as an open web-based tool for analysts.


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