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Decoding climate-positive finance with the power of AI.
Our investment into increased transparency and efficiency for sustainable finance.
The world urgently needs to bridge the gap between finance and climate action to keep global warming below the 2°C target set by the Paris Agreement. Green Bonds, especially Climate Bonds, are attracting dedicated funding for adaptation and mitigation projects by widening the pool of climate investors to accelerate this mission. Join us below to learn how new technology like machine learning ensures this critical market's success by bringing transparency, accountability, and efficiency to the space.
For a deeper look into climate bonds, check out our public research Notion.
In 2015, 196 parties of the United Nations met over two weeks in Paris to draft an agreement that would reduce greenhouse gas emissions, limit the mean rise of global temperature, and avoid the climate catastrophe we are all heading toward. Under this agreement, which 193 parties have now signed, a goal was set to keep global warming to “well under” 2°C compared to where it was before pre-industrial levels (1850–1900). For reference, we are already above 1.1°C of warming, and that is rising at about 0.2°C every year.
Under the Paris Agreement, each country was expected to set up its own action plan with specific targets to reduce emissions, called the Nationally Determined Contributions (NDCs). The original NDCs, which were estimated to cost upwards of $191 billion to implement by 2030, have been assessed as falling significantly short of the impact necessary to achieve the 2°C target. It turns out that global climate spending needs to increase by $4.35 trillion annually, so averting the worst effects of climate change isn’t going to happen without a significant change in how we finance climate action.
Navigating the climate-finance language barrier
One of the most promising methods of getting climate finance into the hands of adaptation and mitigation projects is called Green Bonds, more specifically one type of Green Bond: Climate Bonds. Bonds are a type of debt financing that allows governments, corporations, and other organizations to borrow the money they need. Instead of taking out one massive loan from a single lending institution, the borrower receives smaller sums from multiple lenders on the promise to pay them back with interest and, in the case of climate bonds, to only use them for climate-positive projects.
The rates of green bonds are tied to the targets set by the borrower, and there are often government incentives that make them a more appealing investment. Unfortunately, one of the biggest problems facing sustainable finance is that many finance people don’t know climate, and many climate people don’t know finance. So when one side is speaking in emissions reduction targets, and the other side is expecting to hear financial returns, miscommunications are bound to happen. The fact is that investors need to be sure their money is going to credible projects for the market to really take off.
Unfortunately, measuring the impact of green bond projects can be messy and complicated, especially when regulations are constantly changing. The data required is often unstructured and difficult to interpret, and the skills needed to monitor and report on this data in a financially compatible way can be scarce, especially in emerging markets where the most urgent financing is needed.
Aligning climate impact with financial success
The success of the climate bond market depends on transparency, and there is already too much money going in without measurable impact. Since the first green bond was issued in 2007, $4.6 trillion has flowed into this market, and up to another $1 trillion is expected in 2023 alone. Fortunately, the advancement of deep learning and large language models now allows data organization and processing at never-before-seen speeds. So today, we are proud to announce our investment in a company that is positioned to use this technology to change the sustainable finance market forever: ClimateAligned.
ClimateAligned is bringing greater efficiency, clarity, and focus to sustainable finance, and really the entire debt investment market since the application of this technology is not limited to just those transactions that have been labeled as “green.” The founding team has a remarkable combination of technical and industry expertise on top of an impressive operational background. Co-founder and CEO Aleksi Tukiainen is an entrepreneur and engineer who has already developed successful climate, finance, and biotech startups. Krista Tukiainen, Co-founder and CCO, is an expert in green finance and was formerly Head of Market Intelligence at the Climate Bonds Initiative (CBI), responsible for CBI’s thematic bonds classification, data systems, and taxonomy development. Krista is still a Senior advisor to CBI and an LSEG Sustainable Bond Market Advisory Group member.
The debt investment market is currently the largest capital market segment in the world, but until now, no one has been servicing it through the lens of climate finance. We are proud to support the ClimateAligned team in their mission to create a financial industry that can successfully operate within our planet's limits, and we can’t wait to see what the future has in store.
Check out our public research Notion to learn more about climate bonds.