Central banks build AI tool to monitor climate risks

The global body representing a group of central banks says it is testing an AI tool to collect data to assess climate-related financial risks.

The Bank for International Settlements (BIS), the Bank of Spain, Germany’s Bundesbank, and the European Central Bank, said on Tuesday that its experimental Gaia AI project was able to analyse company disclosures on emissions, voluntary net-zero commitments, and green bond insurance.

The tool leverages artificial intelligence (AI) to analyse vast amounts of [cm_tooltip_parse]data[/cm_tooltip_parse] from companies.

Traditionally, assessing climate risk for financial institutions has been a cumbersome process. Regulators and insurers grapple with large amounts of data in various formats, from text reports to tables and charts, which they require to assess the impact of climate change on financial institutions effectively.

Each key indicator for climate risk often requires manual verification by analysts, contacting companies directly or searching for publicly available information.

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Gaia AI disrupts this time-consuming process. By harnessing AI’s power, the tool can rapidly analyse company disclosures, allowing analysts to extract and compare multiple key risk indicators across numerous companies simultaneously, significantly improving efficiency.

“Project Gaia showcased the potential of generative AI to streamline central bank operations,” Raphael Auer, head of the eurosystem centre, at the BIS Innovation Hub said.

“By automating and refining data processes, GenAI can change the way we work, offering a blueprint for efficient, data-driven progress,” he added.

Furthermore, with new mandatory climate-related disclosures being implemented in the US and EU, companies will be providing more detailed information, further enhancing the utility of Gaia AI.

The BIS plans to make Gaia AI publicly available as a web-based service for analysts, furthering global collaboration on climate risk assessment.

Beyond its immediate application, the project holds significant promise.

“Gaia’s integration of Large Language Models (LLMs) to extract data on climate risk is ground-breaking,” stated a joint press release from the BIS and central banks.