AI as a Tool for Sustainability Analysis
Companies are increasingly publishing information to show how they are responding to climate change. Markus Leippold, Professor of Financial Engineering, uses artificial intelligence to sift through and check this jungle of information. Text: Elisabeth Liechti
Finance Professor Markus Leippold is breaking new ground with his research: he is using artificial intelligence to approach problems in finance. He found the inspiration for his most important research project to date during a research stay at Google in 2019: There, the algorithm BERT, which underlies the Google search function, was developed. "In the future, computers should be able to understand texts and spoken words in the same way that humans can," the professor realised - and began to delve deeper into the subject.
Together with his team, Leippold finally developed ClimateBERT - an algorithm with which climate-related, unstructured text information from various sources can be made available. Above all, however, assertions on the topic of climate can be analysed for facts. With the help of ClimateBERT, the research team was able to show that companies talk a lot about sustainability, but there is little behind it.
Concrete tool for supervisory authorities
This is problematic, says Markus Leippold. The market can only function efficiently if the relevant information from the companies is available to investors. After all, they have to be able to assess possible risks before they hand over money to companies. In addition to the uncertainties that a certain business model entails, they must also be able to assess the climate risks. ClimateBERT could help regulators to verify companies' statements. Financial analysts and investors could verify statements on climate-related risks - and thus distinguish sustainable action from greenwashing. However, Leippold also admits that it is currently difficult for companies to do business in a green way and to report this accordingly.
There is still a lack of simple, clear and internationally coordinated rules on what companies have to report.
At the same time, according to Leippold's further research, the "sustainable finance literacy" of Swiss private investors is not very good, which makes them easy prey for greenwashing.
Nevertheless, Leippold confirms that there is interest in Climate-BERT, but the political wheels grind slowly. He currently gives one or two lectures a week to make the financial industry and politicians aware of the tool and the greenwashing problem. Because: "What good is a paper that only a few people read, except for academic merit? He would rather use his academic freedom to really contribute to a change. Time is pressing.
(Prof. Dr. Markus Leippold is Professor of Financial Engineering at the University of Zurich, Chairman of the Executive Committee and a member of the Study Programme Committee of the Finance Weiterbildung. He teaches in various executive education courses in the field of finance, including fintech, sustainability, risk management, financial theory, etc.)
Text: Elisabeth Liechti
Source: Oec. magazine issue #18