Relationship Between AI and Green Finance: Exploring the Changing Dynamics

Introduction

Environmental issues have been become more prevalent to address since last decade, specifically after the Paris agreement, in 2016. Environment has been exploited extensively during the industrial revolution and the consequences of that have started displaying recently. Major and mostly initiatives about the issues are taken by since last decade i.e. launch Sustainable Development Goals (SDGs) for 2030, introduce National Determined Contribution (NDC) in Paris agreement and many more. Attention towards environmental concerns have been increased for the last two decades that resulted in to numerous agreements and accords and management practices at organizational as well as employees’ level (Anshima and Bhardwaj, 2023). The main objective of these agreements is to achieve the sustainable development goals by using different targets i.e. achieve net-zero goals, reduction in GHG emission, etc. Recent growth in the Asia has resulted in high air pollution in the Asia-pacific region (Uddin et al, 2022).

The major pillar for achieving sustainability is to arrange the adequate finance (Barua & Chiesa, 2019). To meet the criteria of sustainable project required copious amount of investment in green infrastructures. According to an estimate of UNCTAD, to meet the target of SDGs will require USD 5 to 7tn every year for 15 years. To meet the increasing demand of the finance towards sustainability, it is necessary to adopt innovative financial instruments, which is developed to meet the requirement of green finance. Green finance is one of the initiative in this direction that tries to give fair returns to the investors and helpful in order to finance the sustainable development goals (Berensmann and Lindenberg, 2019; Ozili, 2021). In the domain of green finance, famous financial green instruments is Green Bond (GB). The capacity of GBs to source the funds towards sustainability has been increased since the first issuance of GB in 2007 by European Investment Bank (EIB). GB has been become popular and preferred choice among the investors since it came into existence. In this study, GB based index was also taken to represent the GF, previous literature took GB as a proxy of GF (Taghizadeh-Hesary et al., 2021; Aneja et al., 2023). Numerous reasons are there to explain the limited growth of GB and one of them is the presence of information asymmetry (Berensmann & Lindenberg, 2016). The problem of information asymmetry will be reduced drastically with the help of AI based fintech resources (Cen & He, 2018).

Artificial intelligence is the crucial, relevant and the center point in Modern business management (Bhardwaj et al., 2023a). With industrial revolution 4.0, the whole world suffers from the climate change in today’s world. Major economies of the world have been affected by the climate change issue. Since a long time various initiative have been taken up at global level to reduce carbon emission such as carbon trading, carbon credits etc (Bhardwaj, 2013). However, to tackle this issue, it is need to have copious amount of investment in the green technology. To increase the collection of amounts that is use for sustainability, numbers of financial instrument came into existence. Out of them, GB is one of the famous instruments. Finance supplying capacity of Green Bond has been increased over time, because GB can hedge the complete investors’ equity portfolio in all economic conditions of the company (Chopra & Mehta, 2023).