Witnessing the integration of Artificial Intelligence (AI) in every aspect of our lives, the words of R. Buckminster Fuller resonate in my mind that “Humanity is acquiring all the right technology for all the wrong reasons”. AI was one of the main building blocks of Industrial Revolution 4 or Industry 4.0. However, with time, the environmental costs of rapid and unplanned AI adoption and integration have become evident.
The International Monetary Fund (IMF) has projected that AI-driven electricity demand will triple by 2030, resulting in a cumulative 1.2% increase in global greenhouse gas emissions, which will impose a social cost estimated at US$50 – US$66 billion. According to studies, in the absence of a green strategy, generative AI will add 1.2 to 5 million tonnes of e-waste between 2020 and 2030. This realization has led us towards the synergistic blend of AI and ESG, the fundamental basis of Industry 5.0, that focuses on human-machine collaboration, environmental sustainability, and increased resilience. It has created the concept of “factory of the future” that is not only more efficient and productive but also more environmentally sustainable, worker-friendly, and resilient.
Banks can use Green AI to optimize the data center’s energy usage and reduce paper waste, resulting in a reduction of the bank’s Scope 1 & 2 emissions.
Green Artificial Intelligence (AI) is more environmentally friendly and inclusive than conventional AI. It incorporates sustainable practices and techniques in model design, training, and deployment that aim to reduce the associated environmental cost and carbon footprint. One of the key areas where AI meets ESG is energy efficiency. As of 2023, data centers accounted for 2.1% of global electricity use and 0.8% of global energy-related GHG emissions, with usage growing at 12% annually from 2017 to 2023.
Green AI has substantially reduced this environmental burden through smart grids that reduce overall electricity needs by optimizing alignment between regional power generation and local demand. Smart grids manage variable magnitude and direction of electricity flows by constantly balancing supply and demand, enhancing overall efficiency. This amalgam of AI & ESG in the form of Green AI can play a substantial role in the green transformation of the construction industry. It can analyze sensor data from smart buildings and cities to optimize heating, ventilation, and air conditioning, lighting, and energy usage patterns, thereby resulting in significant energy savings and reduced carbon emissions.
Vehicular emissions are one of the major sources of air pollution, especially in developing countries like Pakistan. Through real-time data analysis, AI can predict traffic patterns, optimize routes, and alleviate congestion, which can substantially reduce vehicular pollution. Precision farming and climate-smart agriculture are based on Green AI technologies using data from sensors, satellites, and drones. Green AI ensures the achievement of economic, environmental, and social sustainability through increasing crop yield and disease control. Research has shown that the use of Green AI tools & techniques can increase crop yields by up to 25% while cutting water use by 20-25%. Green AI is facilitating the attainment of various UN-SDGs through ESG implementation across various economic sectors, including but not limited to renewable energy generation & distribution, climate-smart agriculture, supply-chain management, health and education development.
The financial institutions, especially the banking industry, are the pillar of a nation’s economy, and the just green transformation of the various economic sectors cannot be accomplished with an ESG-driven banking system. Green AI can play an important role in embedding the ESG ideology within the core banking framework. The various Green AI applications can process and interpret large-scale environmental data, enabling FIs to assess climate-related risks with greater precision and foresight. It can help in detecting non-compliance with ESG standards, both within the bank and among its clients, by sifting through complex datasets for indicators of potential issues in environmental, social, or governance fronts. AI-powered analytics can better evaluate borrowers’ environmental risk and ESG performance, facilitating sustainability-linked financing and green bonds.
Banks can develop chatbots to interact with customers and gather direct feedback on ESG-related issues, products and services. In today’s banking industry, many sustainability disclosure standards like the International Financial Reporting Standards (IFRS) S1 & S2 involve highly detailed principles-based standards, requiring interpretation, consistent application, and extensive disclosures.
Green AI can help the banking industry in AI collecting, linking and reporting of sustainability data with IFRS financials. Banks can use AI to analyse data across operations and quantify scope 1, 2 and 3 GHG emissions. This will provide valuable insights for setting emission reduction targets. Banks can use Green AI to optimize the data center’s energy usage and reduce paper waste, resulting in a reduction of the bank’s Scope 1 & 2 emissions. One of the key aspects of Green Banking & ESG is not just reducing the bank’s own operational emissions but supporting clients in decarbonizing their business operations & supply chains. For the banking industry, Scope 3 emissions are the most critical as financed emissions from the credit portfolio represent almost 95% of their carbon footprint. Research has shown that adoption of Green AI optimizes transportation routes, load capacity, and modal shifts (electric vehicles), reducing fuel consumption and logistics-related Scope 3 emissions by 10-30%.
The environmental, social, and economic benefits of AI integration in various economic sectors are numerous, and banks can facilitate this Industry 5.0 transformation by financing various Green AI-backed projects across industries. Under the umbrella of Green Banking & ESG, the Pakistan banking sector can revolutionize the country’s economy by financing the synergy of Green, ESG, & AI. The fusion of AI and ESG in our banks is more than a technological shift. It is a chance to create a sustainable future for Pakistan based on financial inclusion, economic prosperity, technological innovation, social equity, and environmental sustainability.
Dr Syed Asim Ali Bukhari is working as SVP/Head – ESG at The Bank of Punjab and Dr Syeda Nazish Zahra Bukhari is working as an Assistant Professor at the University of the Punjab.