Most companies that file financial statements do not disclose their greenhouse gas emissions (GHG).

Evaluation of companies’ carbon footprint is essential for countries to be able to meet their 2050 decarbonization targets for 2050 as per the Paris Agreement. For investors, the quantum of greenhouse gases (GHG) emitted by a company could be an important factor to evaluate its suitability in a portfolio geared towards positive climate actions in the context of ESG. While most companies do not yet formally disclose their emission data, AI can now reasonably estimate this crucial metric. (VentureBeat)

Companies to be climate-accountable

“Merely 2.27% of companies filing financial statements are disclosing their [greenhouse gas] emissions according to our environmental, social, and governance (ESG) datasets,” write co-authors You Han, Achintya Gopal, Liwen Ouyang, and Aaron Key in a research paper titled Estimation of Corporate Greenhouse Gas Emissions via Machine Learning. The authors are researchers at Bloomberg Quant Research and Amazon Web Services.

“In order to make a meaningful change, we need to measure who is contributing [greenhouse gases] into the atmosphere and monitor their claims to decarbonize.”

The researchers have developed and trained an AI algorithm to estimate a non-reporting company’s GHG.

How it works

They trained the model on data relating to disclosed emissions, from datasets containing company financials such as balance sheets and income statements, corporate locations, and ESG records. The ESG records contained a wealth of data such as carbon emissions and resource and energy use; human rights and diversity and inclusion; and criteria based on management structure, executive compensation, and employee relations.

The model, when tested, estimated well the GHG emissions of companies in industries including health care, technology, financial, materials, real estate, utilities, energy, and communications.

“Our model provides accurate estimates of corporate GHG emissions to investors such that they are able to align their investments with the regulatory measures and achieve net-zero goals,” write the authors of the study.

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