AI meets Climate Change

In this week’s edition of Climate Decoded, James Newsome, Chief Data Officer, shares his expert insight into how AI can be used by companies to advance climate initiatives and reduce GHG emissions in a responsible way. 

The Democratization of AI

While Artificial Intelligence (AI) has been around for a while, it has become notably more accessible and powerful in recent years. This breakthrough has shifted the way we approach technology and its impacts on society.

Before the internet, researchers had to physically go to libraries to gather information. With search engines such as Google, information became more accessible but still required clicking through links to find the desired answer. Now, with the rise of Large Language Models such as ChatGPT, we can simply ask a question and get an answer in real time. The underlying pattern remains the same—humans crave knowledge and require access to it for progress. Providing such access is crucial in creating a fair and sustainable society.

Reducing the Burden of Carbon Accounting with AI

Historically, data engineering and AI systems were often purpose-built. Gone are the days of machine learning systems built for a single decision point. AI is now more than just a buzzword, offering solutions to some of the biggest challenges humanity faces, including the urgent fight against climate change.

One area where AI can make a significant impact is greenhouse gas reporting and carbon accounting. As organisations seek to reduce their carbon footprint, they must accurately measure and report their emissions. However, the process of carbon accounting can be complex, particularly for scope 3 emissions from supply chain activities. This is where AI can play a critical role.

As the world wakes up to the reality of climate change, companies are under increasing pressure to disclose their emissions data to regulators and investors. However, the process of calculating a carbon footprint can be time-consuming and cumbersome, requiring a significant amount of manual effort and data cleaning. On average, carbon accounting software users spend 75% of their time mapping business activities to the right inputs to identify corresponding emission factors. This mass of manual effort and data cleaning makes it difficult for companies to accurately report their carbon footprint, especially for supply chain emissions. At Persefoni, we are using AI to make our platform smarter, reduce friction, and accelerate the time to calculation.

In late 2022, our first AI model was released to help users more efficiently map carbon data types within our platform. Now Persefoni AI includes a host of new capabilities to make our users more productive and act as their carbon copilot. Our latest release flags data anomalies and outliers in their GHG data, detects and resolves inconsistencies, and leverages smart emissions factor recommendations based on their business activity descriptions. These AI capabilities help our customers accelerate from measurement and reporting to reduction, faster than ever. 

Forecasting and Reducing Carbon Emissions with AI

AI also has the potential to change the way we approach forecasting and estimating future carbon emissions. By analyzing historical data and using predictive modeling, AI can help companies identify trends and patterns in their carbon emissions and develop strategies to reduce them. Our product, Net Zero Navigator, developed in partnership with Bain & Company., is just one example of how algorithms can help companies generate multivariate decarbonisation scenarios and achieve their climate targets.

AI has the potential to optimize energy consumption in buildings, predict weather patterns to to assist in planning for extreme weather events, and lift the efficiency of renewable energy systems. For example, AI can forecast the optimal times and locations for generating maximum energy from renewable sources like wind turbines and solar panels, ultimately improving their overall efficiency. These are just a few ways AI can help fight climate change.

Using AI in a Responsible and Ethical Manner

It's important to recognise that while AI has the potential to address climate change, it must be done in a responsible manner. As AI is increasingly integrated into business practices, companies must be mindful of the potential ethical implications of using AI and take steps to ensure that the technology is used in a way that aligns with their values.

As we continue to explore and develop AI, let's keep these considerations in mind to ensure a better future for all.

Climate & ESG News Roundup

Biden proposes limits to GHG pollution from existing power plants

Last week, the Biden Administration and the Environmental Protection Agency (EPA) announced new emission limits for existing coal- and natural gas-fired power plants – a first-of-its-kind regulation on pollution from such plants. The proposed limits would require plants to reduce their emissions by 90% between 2035 and 2040, pointing to “cost-effective control technologies that can be applied directly to power plants,” such as carbon capture and storage, as well as clean hydrogen to make such steep cuts possible. 

The proposal also makes it clear that plants can choose to shut down ahead of schedule, saying that those who make the decision to hasten their closing in the first half of the 2030s can avoid most or all of EPA’s pollution-reduction mandates. This is no small act, as this proposal is estimated to avoid “up to 617 million metric tons of total carbon dioxide (CO2) through 2042,” equivalent to the annual emissions of half of the cars on the road in the U.S. today. For now, the proposal is open to public comment for 60 days, and is expected to be met with litigation from Republican attorney generals. 

35% of listed companies are already reporting scope 3 emissions

MSCI’s May 2023 "Net-Zero Tracker" report found that 35% of listed companies are disclosing at least some scope 3 emissions. This number has been rising rapidly, up from 31% seven months earlier. For their analysis, MSCI considered companies within the MSCI All Country World Investable Market Index, which contains over 9,000 companies across 23 developed markets and 24 emerging markets. 

Reporting on scope 3 upstream emissions (e.g., purchased goods and services, business travel) is more common than reporting on scope 3 downstream emissions (e.g., investments, use of sold products). Of the 9,030 companies analyzed, MSCI found that 2,566 companies are disclosing scope 3 upstream emissions, while 1,806 are disclosing scope 3 downstream emissions.

MSCI’s report helps provide evidence to refute the common talking point that scope 3 emissions are simply too difficult to report on today. Technology has meaningfully changed the ability of companies to gather data from their suppliers and compile scope 3 emissions disclsoures. As MSCI’s report notes, though the collection of scope 3 emissions can still present meaningful challenges, “taking inventory of [s]cope 3 emissions is getting easier as carbon accounting improves[.]” 

Proposed legislation to crack down on greenwashing in EU gains parliament’s support

Parliament came out last week in support of proposed legislation that seeks to improve consumers’ ability to make well-informed purchasing decisions. The rules would ban the use of sustainability terms such as “green,” “eco,” or “natural” for marketing products without substantial evidence to support such claims. These terms would also be banned for use in marketing products whose sustainability efforts are limited to carbon offsetting schemes. 

These rules also seek to improve efforts around product longevity and durability by banning the introduction of design features that would intentionally limit product lifespan. They would also prevent manufacturers from limiting a product’s functionality when used with spare parts, accessories, or consumables from other brands. 

Additionally, companies would be required to disclose repair restrictions to consumers before purchasing, and include guarantee labels that include the length and possible extensions available for the guarantee. In turn, this would ideally encourage manufacturers to prioritize durability by highlighting high-quality products.

Events You Can't Miss

• Gear up for imminent disclosure regulations with our upcoming free webinar featuring ESG experts from Persefoni, Deloitte, and Paul, Weiss. Registration is open, with the virtual webinar slated for May 22.
• Investor relations professionals seeking to stay ahead of emerging trends that will impact their organisation can get expert insight from SMEs such as our own Kristina Wyatt and Mike Wallace at the NIRI Annual Conference. Register here for the June 6-8 event in Chicago.