Green Finance: revolutionizing the sustainability of the financial sector with GeoAI

Jul 9, 2024 | #Sustainable | 0 comments

The current economic situation, together with global geopolitical changes, has caused a paradigm shift in the financial sector. In 2020, the regulated carbon market in the European Union (EU ETS) reached a value of more than 229 billion euros, representing 40% of total EU emissions. In addition, 70% of farmers report difficulties in accessing credit, which limits their productive capacity and their participation in sustainable transformation.

Despite the strong traditional component of financial institutions, they have integrated ESG (environmental, social and corporate governance) vectors into their operations. Such is the proliferation of this trend that the term Green Finance has been coined to designate finances that integrate a sustainable perspective. Do you want to discover how finance has changed?

What does the term Green Finance mean ?

Originally, the term Green Finance referred to the financing of sustainable and ecological projects, i.e. supporting those projects directly involved in mitigating the effects of climate change. However, ESG vectors cover the entire sustainability value chain, so the term has evolved to include finances that are responsible and committed to their operating environment. The aim of this movement is to promote a greener and more resilient economy, thanks to the awareness by financial institutions of the importance of financing to ensure the habitability of cities.

CO2 sinks and agriculture: examples of how GeoAI impacts Green Finance

The paradigm shift in the financial sector is directly related to a clear challenge: having valuable data for decision-making that guarantees the profitability of investments in Green Finance projects. Geospatial data, together with artificial intelligence ( GeoAI ), have become key allies of financial institutions. The availability of unprecedented data has driven differential decision-making, transforming the usual way financial institutions operate.

The most important examples of this trend are the possibility of analysing the risks arising from investment in the agricultural sector and the exponential growth of the regulated carbon credit market, which has been voluntary to date, although market dynamics are beginning to call for at least partial mandatory use. These two cases highlight the impact of GeoAI on the financial sector.

In the case of vulnerability analysis arising from the granting of credit to agriculture, geospatial data together with artificial intelligence (AI) allow lending institutions to have a retroactive and detailed analysis of the productivity of a given crop. The possibility of obtaining a historical data of the evolution of the plots serves not only to know how production has evolved, but also to predict or simulate what will happen in the near future. Thus, financial institutions can have sufficient information to make decisions regarding the granting of loans to farmers, based on their capacity within the market rather than on their size.

GeoAI’s contribution to the carbon market is an interesting example of how geospatial data and AI are crucial for the future of sustainability. The precision of the information provided by satellites, together with the analytical capacity of AI, can help calculate the carbon capture capacity of elements that, to date, have not been considered by the regulatory framework: permeable soils, capable of absorbing up to 25% of pollution, or the biodiversity present in the oceans, the largest carbon sequestrants on Earth.

Green Finance to achieve the objectives of the Green Deal

In the Green Deal, the European Commission lays the foundations for the sustainable transformation of the European Union’s economy. Achieving climate neutrality by 2050, promoting the circular economy and facilitating a new production model are some of the main objectives of this document. All of this must also be linked to a strong social and governance component that allows citizens to adapt to these changes.

Green Finance will therefore be a growing trend in the near future. Financial institutions will play a key role in the sustainable transformation of the European Union. ESG (environmental, social and governance) vectors involve financial support that will require modernised mechanisms adapted to new needs to accompany citizens towards a new sustainable economic model.

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