Climate change threatens the stability of the global economy, but the finance sector still largely continues to lag behind on the climate progress needed to mitigate it. In order to accelerate the scale of that progress, the sector must take full advantage of the power of technological developments such as artificial intelligence, said Andrew Zolli, chief impact officer of Planet Labs, at GreenBiz’s annual GreenFin 22 conference on climate finance last week in New York City.
In a talk on "Data and AI in the Age of Radical Transparency," Zolli spoke of the ways that satellite-based data collection and AI-based data analysis are advancing: Hundreds of satellites "the size of a loaf of bread" in space collect data from every corner of the planet.
"We collectively image the entire surface of the Earth every day at about 3 meters per pixel," Zolli said. "We're not reading your newspaper. We're not spying on you. We're not interested in that.
"What we're interested in is change — because this allows us to see every field, every forest, every facility, everywhere, every day. When you extract — using the tools of machine learning and computer vision — these essential patterns, you can see all kinds of things on the earth."
That high-resolution, high-quality data can enable global capital markets to finally account for 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 to determining the climate resilience of investment decisions.
How AI can help financial institutions measure the value of nature
Zolli pointed out one shortcoming of the way that the finance sector currently does business: It fails to adequately value ecosystems before various parts of them are turned into assets.
"There have been some fundamental precepts in global capitalism in global capital markets," he said. "One of the most basic is that nature is hyperabundant, self-replenishing and free."
"That leads to a weird situation where today you have an organization like Amazon, which is measured to a thousandth of a penny, a billion times, and the actual Amazon for which it's named has no intrinsic economic value at all, until the trees are cut down and the forests are cleared and they're turned into productive assets."
Today you have an organization like Amazon, which is measured to a thousandth of a penny, a billion times, and the actual Amazon for which it's named has no intrinsic economic value at all.
The technology from organizations such as Planet could help rectify this issue. With satellite imagery, they can map the full scale of natural capital not only in the Amazon but around the world.
Zolli explained that they can extract the data of "what we call essential planetary variables: where is all the water, the carbon, the biodiversity, the biomass, the agriculture, the roads, the buildings, the bridges — all of that stuff."
The tools that measure these variables can then be embedded in the financial system in a way that they can be “"broadly shared sources of truth all across the sector," he added.
How to factor these values into financial business decisions
This powerful data enables several kinds of decisions for financial institutions. Planet can, for example, pinpoint methane emissions detection down to the individual facility level that they’re coming from in real-time. Much of this information is public.
"We can look down and say, 'It's this cattle processing plant,' 'It's this landfill,' 'It's that oil and gas facility' with precision," Zolli said.
Investors — and everyone else — know how many methane emissions are coming from their investments. If that number exceeds an emissions target or pushes past a net-zero goal, that investor might have to sell off the asset or pressure the manager of that facility to reduce emissions. In addition, because that information is public, policymakers and regulators have access to it — creating legal liability risks for emitting.
"If we can make detecting those emissions incredibly cheap, we can make ignoring them incredibly expensive," Zolli said.
In addition, being able to measure which forests or facilities are doing a good job sequestering or saving greenhouse gases can incentivize greater investments there. A bank might choose to offer greater financing to a company with a smaller carbon footprint because of the lower risk of legal liability and better public perception.
Using AI to put climate change on balance sheets
Zolli is hopeful that bringing together two of the most powerful industries in the world, technology and finance, to push for progress on climate change could create a paradigm shift. Building unprecedented transparency in global capital markets has major potential for the two sectors — and the way they approach climate action.
"Now it's time for technology and finance — the two big systems drivers — to come in and deliver this kind of work," Zolli said. "We have bigger problems than we may have ever imagined before, but we also have better tools that we really understand, and this is just one of them, among a bunch of others."