Balancing Green and Fair: Ethical AI in Sustainable Finance

Abstract

Artificial intelligence (AI) is revolutionizing the area of green finance, enabling financial institutes to make more learnt and sustainable investment choices. This systematic review explores the influence of AI on green finance, focusing on its role in promoting ethical and responsible financial practices. The review examines the technological infrastructure and expertise required for implementing AI in green finance, counting advanced data analytics platforms, machine learning algorithms, and real-time data processing systems. It also discusses the ethical considerations for AI deployment, such as fairness, transparency, accountability, and safety. The review highpoints the likely of AI to address challenges in green finance, such as regulatory and policy gaps, limited investor awareness, high capital costs, risk assessment difficulties, market demand uncertainties, insufficient investment, greenwashing concerns, and lack of standardized metrics. The study analyzes the growth in total investments in green finance in India from 2018 to 2022, demonstrating the growing adoption of AI in both private and public financial sectors. Case studies illustrate the impact of AI integration in green finance, such as BlackRock’s AI-powered ESG scoring and AI-driven credit risk assessment models for green bonds in India. The review also identifies several AI-driven tools that address specific challenges in green finance, including Project AISE, Clim8 Invest, Arabesque S-Ray, and Clarity AI. The discussion emphasizes the need for a unified regulatory framework, increased investor awareness, and standardized metrics to entirely attach the potential of AI in green finance. The review wraps up by emphasizing the pivotal impact of AI in empowering financial institutions to make decisions based on data, reduce risks, and enhance transparency in green investments, thereby playing a crucial role in achieving sustainable development goals.