Central Bank Uses AI Gaia To Analyze Climate-Related Financial Risks

Central Bank is starting to use artificial intelligence to assess climate-related financial risks. (photo: dock. bus)

JAKARTA Several central banks on Tuesday 19 March announced that they had used artificial intelligence (AI) in their experimental project, Gaia, to collect data to assess climate-related financial risks. This is done in line with the increasing volume of disclosure from banks and other companies.

Bank for International Settlements, Bank of Spain, German Bundesbank, and European Central Bank said that Gaia was used to analyze the company's disclosure of carbon emissions, the issuance of green bonds, and voluntary net-zero commitments.

Bank regulators, insurance, and asset managers require high-quality data to assess the impact of climate change on financial institutions. However, the absence of a single reporting standard makes them faced with various public information spread across texts, tables, and records in annual reports.

Gaia is able to address differences in the definition and framework of disclosure in various jurisdictions to offer much-needed transparency, and facilitate comparison of indicators about climate-related financial risks.

Although there are variations in the way the same data is reported by the company, Gaia focuses on the definition of each indicator, not how the data is labeled. With Gaia, adding new KPI or new institutions to be fast and easy. This allows to extract and analyze large numbers of KPIs from a large number of institutions, opening up the possibility of climate risk analysis on scales previously unimaginable.

Registered companies, including banks and insurance, face climate-related new disclosures under new global, US and European Union rules, which will produce more detailed information, compared to previous voluntary approaches.

Gaia saw 20 key indicators for 187 financial institutions over five years of documents in English and a small number in Spanish and German. The results show how more financial companies are committed to net zero targets and issue green bonds, but not in a unified way around the world.

The central bank said the next possible step was to make Gaia available to the public as an open web service for analysts.