Using AI to Mitigate Climate Greenwashing Risks
The Hong Kong Monetary Authority (HKMA) releases a report on using AI to mitigate climate greenwashing risks, aiming to propose a new RegTech solution for risk management.
The Hong Kong Monetary Authority believes that in fulfilling climate commitments, it is necessary to focus on greenwashing risks. ESG solutions based on artificial intelligence can improve the efficiency of climate analysis and help financial institutions manage greenwashing risks.
Related Post: Hong Kong Establishes First FinTech and ESG Alliance
Challenge of Mitigating Climate Greenwashing Risks
In the practice of mitigating climate change risks, entities often face the following challenges:
- Accurately measure climate impacts and track progress in climate action for comparison and analysis.
- Consider potential uncertainty factors, and predict the likelihood of net zero commitments in the next few decades.
- Establish a system consistent with global climate action to meet the needs of different stakeholders.
- Collect and analyze data to present survey results in a clear manner.
For financial institutions, mitigating climate change risks can be applied in various fields:
- Corporate loans and sustainable finance: Assess the borrower’s climate impact and monitor their progress towards climate goals, verify whether the borrower has violated financing policies, and ensure that sustainable development financial instruments comply with global practices.
- Asset management: Record ESG integration of investment processes and make long-term predictions on the ESG development of investment portfolios.
- Capital market: Establish pricing and structure for ESG products to mitigate ESG risks.
AI Solutions to Mitigate Climate Greenwashing Risks
The Hong Kong Monetary Authority proposes an artificial intelligence based ESG solution that measures climate impact by analyzing ESG data and predicts entities’ readiness for transition. This method can save financial institutions the cost of verifying climate data and identify potential greenwashing actions, providing assistance for sustainable business.
The ESG solution based on artificial intelligence can also generate relevant reports, including net zero progress, climate impact, sustainable disclosure information, etc., to improve the consistency of information disclosure with major global regulatory frameworks. The Hong Kong Monetary Authority suggests that financial institutions analyze the feasibility of this solution based on their actual situation.
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