Central bankers announced on Tuesday that they had broken new ground by employing artificial intelligence to gather data for analyzing climate-related risks to financial stability, just as the amount of reports from banks and other firms is expected to increase.

Highlights:

• Central banks employ AI with the Gaia project to analyze climate-related financial risks.
• Gaia resolves data discrepancies, enhancing transparency in risk analysis.
• Gaia's findings underscore a growing commitment to climate goals and the potential of AI in financial risk assessment.

The Bank for International Settlements, which serves as a forum for central banks, the Bank of Spain, Germany's Bundesbank, and the European Central Bank said that their experimental Gaia AI project was used to examine firm disclosures on carbon emissions, green bond issuance, and voluntary net-zero pledges.

Bank and insurance regulators, as well as asset managers, require high-quality data to analyze the impact of climate change on financial institutions. However, the lack of a unified reporting standard leaves them with an array of public information scattered among text, tables, and notes in annual reports.

Gaia was able to overcome discrepancies in definitions and disclosure procedures between countries, providing much-needed openness and making it simpler to compare indications on climate-related financial risks, according to a joint statement from the central banks.

Regardless of how different firms present the same data, Gaia focuses on the precise meaning of each indication rather than how it is labeled.

Furthermore, using the old technique, every additional performance indication, or KPI, and each new institution needs the analyst to either seek for the data in public corporate reports or contact the institution directly.

"Gaia makes it simple to add additional KPIs or institutions. This enables the extraction and analysis of a vast number of KPIs from a wide range of institutions, allowing for climate risk assessments on previously inconceivable scales."

Listed corporations, including banks and insurers, will be required to provide additional climate-related disclosures under new global, US, and European Union standards, which will result in more extensive information than the voluntary techniques used previously.

Gaia examined 20 important variables for 187 financial organizations over a five-year period using papers in English and a limited number in Spanish and German.

The findings revealed that more financial organizations are committing to net zero aims and issuing green bonds, but not in a consistent manner throughout the globe.

"The flexible layout could be used as a model for AI-enabled applications across an expanded variety of use cases for banks and the financial sector."

The central banks stated that one potential next step would be to make Gaia available as an open web-based tool for analysts.