Sliced: AI – Unlocking Solutions for Climate Change and Finance

For the better part of 2023, Artificial Intelligence (AI), was hands-down one of the buzziest topics of the year. The gaze of media shifted its focus to other topics, as is the way of the news cycle, but make no mistake: the AI arms race is still a full sprint ahead. The jury remains out on whether AI is going to help humans reach new heights or toss us to the rubbish pile like some sort of outdated human model. But despite an opaque future, the impressive capability of AI has grand utility today.

In layman’s terms, AI is a powerful field of computer science that aims to create intelligent systems capable of performing tasks that typically require human thinking. These tasks include problem-solving, learning, understanding language, recognizing patterns, and making decisions. Crucially, AI can perform these assignments at speeds the human brain cannot even fathom.

When it comes to addressing climate change, AI is already serving as a critical ally. In a 2022 survey of fourteen countries, BCG found that 87% of global public- and private-sector climate and AI leaders saw the tech as a helpful tool in the fight against climate change.

A facet of AI currently being used is “machine learning.” Machine learning concentrates on creating algorithms and models that enable computers to rapidly learn from data and experiences. Its specialization lies in crafting self-improving algorithms capable of making predictions and decisions without explicit programming. By analyzing satellite and drone imagery, machine learning plays a key role in forest monitoring by aiding in efforts to combat deforestation and oversee land-use changes.

One company employing machine learning is Pachama. In June, the US-based company introduced Project Evaluation Criteria 2.1, an AI-driven tool for assessing forest carbon projects. By applying machine learning, Pachama is trying to improve carbon market quality and transparency through a dynamic baseline approach. Their tool employs algorithms and satellite monitoring instead of human assumptions and historical data for emissions prediction. This allows for more accurate estimates of carbon emissions and thus a more realistic number of carbon credits generated. Pachama is not alone as other companies like Chloris Geospatial, Space Intelligence, Equinor, and DevvStream are all relying on AI and machine learning to improve the efficacy and reliability of their respective forest carbon projects.

AI holds vast potential for various applications in climate finance. Fundamental to sound financial decisions is data and its comprehensive analysis. AI excels in rapidly and efficiently processing data, which can enable climate risk assessments for financial institutions and investors to gauge the influence of climate change on their portfolios. Additionally, by generating diverse climate scenarios, AI aids in the identification of potential risks and opportunities.

Concerning green bonds, AI has the potential to scrutinize bond issuance to guarantee that the funds raised are allocated to authentic eco-friendly projects. When it comes to carbon pricing, AI can play a role in monitoring and validating emissions reductions which supports pricing mechanisms and assists in the global reduction of carbon emissions.

AI, although promising, is not without its challenges. It requires substantial natural resources and energy, from the manufacturing and transportation of devices to the greenhouse gas emissions during their entire lifecycle. Moreover, energy consumption is a vital factor in running machine-learning algorithms. ChatGPT, for example, has seen computational demands for training the average model grow tenfold annually. Put simply, the technology is an energy sucker and solutions for balancing the bad with the good must be found in order for AI to reach its potential as an indisputable tool.

Although AI has been in stealth mode for many years, 2023 will undoubtedly go down as the advent of AI, marking a significant turning point in the technology due to rapid advancements, widespread use, transformations, and tech races. We welcome a cautious use of AI and believe that when harnessed effectively, with appropriate guardrails, the tech has the potential to empower more informed decision-making and efficient allocation of climate capital, ultimately contributing to the global fight against the climate crisis.

We also recognize that AI is a comprehensive topic, and this article is just a shaving off ice of the tip of the iceberg. Because of that, we intend to explore and write more in-depth about AI and its potential impactful use-cases. Stay tuned.

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