Role of AI in Reducing Risk and Boosting Transparency in High-Growth Sectors in India

 

 

As India pushes forward on its sustainability agenda, green finance has become a cornerstone of its economic and environmental plans. Now, with artificial intelligence (AI) entering the scene, the potential of green finance is expanding, particularly in sectors such as fashion and general merchandize industries. This technology is crucial in minimizing risk and increasing transparency, vital to India’s mission to meet its ambitious net-zero emissions target by 2070.

What is green finance?

Green finance involves financial investments directed toward projects that aim to protect or improve the environment. These projects cover everything from renewable energy to pollution control and sustainable transportation. Globally, green finance is growing rapidly, with the market expected to hit $2.36 trillion by 2023.

In India, while still relatively new, green finance is picking up speed. The country will need around INR 716 lakh crore (about $10.5 trillion) by 2070 to meet its climate targets, with INR 162.5 lakh crore needed by 2030 to achieve the goals outlined in the Paris Agreement. This creates both a challenge and an opportunity for India’s green finance sector.

How AI is transforming green finance?

AI is fast changing how the green economy works by addressing ongoing issues such as systemic inefficiencies, lack of transparency, and the high risk that comes with green investments. With its powerful data analytics and predictive capabilities, AI helps mitigate risk by identifying the outcomes of green projects and anticipating any potential environmental challenges therein.

Enhanced data analysis and risk assessment

The adoption of AI has enabled the analysis of vast amounts of SME suppliers’ data related to environmental footprint and social impact. It enables more efficient and accurate risk assessments, helping the funders to make informed decisions to achieve sustainability goals and mitigate risk.

Improved transparency through digital documentation
Digital documentation facilitates supply chain visibility by tracking and reporting of sustainability-linked projects. By providing stakeholders with access to related data and reports, AI-powered digital documentation tools enhance efficiency and transparency, building trust among suppliers, buyers, and funders.

Streamlined KYC and reporting

AI also provides significant aid in KYC and reporting processes, ensuring that projects adhere to environmental standards, best practices for social good, and regulatory governance. Digital transformation reduces the administrative burden on SME suppliers and enhances accountability, making it easier for funders to understand the process of green financing. This allows stakeholders to proactively address potential market challenges and align their mitigation strategies with sustainable growth objectives.

Learning from global success and India’s next steps

The global success of AI in green financing is a shining beacon for India. There is plenty that our nation can imbibe by taking the example of Singapore, a nation that started promoting green fintech in 2015 and quickly established itself as a global fintech hub. Today, Singapore’s green finance ecosystem thrives on the back of AI and big data analytics. India is actively following this trend by increasingly integrating this technology into its economic policies.

 

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