How AI can help the financial sector move towards climate solutions
Climate change threatens the stability of the global economy, but the financial sector remains far behind on the climate progress needed to mitigate it. To accelerate the scale of this progress, the industry must take full advantage of the power of technological developments such as artificial intelligence, said Andrew Zolli, director of impact at Planet Labs, at the annual GreenFin conference. 22 from GreenBiz on climate finance last week in New York City.
In a talk on “Data and AI in the Age of Radical Transparency,” Zolli spoke about how satellite data collection and AI-powered data analytics are advancing: Hundreds of Satellites “the size of a loaf of bread” in space collect data from all corners of the planet.
“We collectively imagine the entire surface of the Earth every day at about 3 meters per pixel,” Zolli said. “We don’t read your newspaper. We don’t spy on you. We don’t care.
“What interests us is change – because it allows us to see every field, every forest, every facility, everywhere, every day. When you mine – using machine learning and machine vision tools computer – these essential patterns, you can see all kinds of things on earth.”
This high-resolution, high-quality data can enable global financial markets to finally factor in short- and long-term climate risks and opportunities, from capturing the intrinsic value of the services nature provides to identifying bad actors to avoid working with in determining the climate resilience of investment decisions.
How AI can help financial institutions measure the value of nature
Zolli pointed to a shortcoming in the way the financial industry currently does business: it fails to properly value ecosystems before various parts of them are turned into assets.
“There have been fundamental precepts in global capitalism in global capital markets,” he said. “One of the most basic is that nature is superabundant, self-replenishing, and free.”
“It leads to a strange situation where today you have an organization like Amazon, which is measured in thousandths of a penny, a billion times, and the actual Amazon for which it is named has no intrinsic economic value, until the trees are cut down and the forests are cleared and they are turned into productive assets.”
Today you have an organization like Amazon, which is measured in thousandths of a penny, a billion times, and the Amazon that gives it its name has no intrinsic economic value.
Technology from organizations such as Planet could help solve this problem. Using satellite imagery, they can map the full scale of natural capital not just in the Amazon but around the world.
Zolli explained that they can extract data from “what we call essential planetary variables: where is all the water, carbon, biodiversity, biomass, agriculture, roads, buildings, bridges? – all of this “.
Tools that measure these variables can then be integrated into the financial system in such a way as to become “‘widely shared sources of truth across the industry,'” he added.
How to incorporate these values into financial business decisions
This powerful data enables several types of decisions for financial institutions. Planet can, for example, trace the detection of methane emissions down to the level of the individual facility from which they originate in real time. Much of this information is public.
“We can look down and say, ‘It’s that cattle processing plant,’ ‘It’s that landfill,’ ‘It’s that oil and gas facility’ with precision,” Zolli said.
Investors – and everyone else – know how much methane emissions come from their investments. If that number exceeds an emissions target or exceeds a net-zero goal, that investor might have to sell the asset or pressure the manager of that facility to reduce emissions. Moreover, since this information is public, policy makers and regulators have access to it, which creates risks of legal liability in the event of an emission.
“If we can make detecting these emissions incredibly cheap, we can make ignoring them incredibly expensive,” Zolli said.
Additionally, being able to measure which forests or facilities are doing a good job of sequestering or conserving greenhouse gases can encourage more investment in them. A bank may choose to offer more financing to a company with a lower carbon footprint due to the lower risk of legal liability and better public perception.
Using AI to put climate change in balance sheets
Zolli hopes that bringing together two of the world’s most powerful industries, technology and finance, to advance the fight against climate change could create a paradigm shift. Building unprecedented transparency in global financial markets has major potential for both sectors – and how they approach climate action.
“Now is the time for technology and finance – the two main drivers of the system – to step in and deliver this kind of work,” Zolli said. “We have bigger problems than we ever imagined before, but we also have better tools that we really understand, and this is just one of them, among many others. “