How space tech could tackle sustainable finance’s data problem

Faced with a climate crisis and an ever increasing number of reporting requirements, the financial sector has a data problem--it’s often insufficient, incomparable or simply missing. Lucien Hoffmann from the Luxembourg Institute of Science and Technology thinks space technology can help solve the issue.

Source : delano.lu
Publication date : 10/24/2024

From droughts and wildfires to deforestation and floods, the climate crisis is becoming more and more serious. In response, the financial industry is directing money towards climate adaptation and climate mitigation. But with sustainable finance comes a lot of reporting requirements--and a lot of data--to make sure that targets are being met.

That being said, the necessary data is often not easily available. In many cases, its disclosure is voluntary, so companies may not even want to provide it. It may be hidden in paragraphs of legal text, or disguised with distracting “feel-good” stories, noted Lucien Hoffmann, director of the environmental research and innovation department at the Luxembourg Institute of Science and Technology, speaking at the 2024 edition of the Luxflag Sustainable Investment Week on 23 October 2024. This lack of transparency, he added, could lead to gaps and misleading information.

Here’s where space technologies could help.

Navigation, telecoms and Earth observation

The space technologies that Hoffmann highlighted fell into three categories: navigation (like GPS), telecommunications (such as 5G or satellite communications) and Earth observation. The availability of satellites has grown exponentially in recent years, along with their spatial and temporal resolution. It’s possible to monitor the Earth in almost real time, Hoffmann argued, and for a very low price.

Geospatial data is high-frequency, low-cost, covers large and remote areas, is independent of self-reporting bias and consistent across the planet. And thanks to the development of artificial intelligence, high-performance computing, more complex machine learning algorithms, IT infrastructure and data analytics, all of this is becoming easier, allowing the financial sector to take advantage of these technological advancements for their own data needs.

Potential use cases for banking, insurance and funds

So how exactly can the financial industry use the data obtained by space technologies? Hoffmann provided several examples.

In the banking sector, for instance, space data could be used to provide insights and forecasts when granting loans to people or businesses in the real estate, agriculture or energy sectors. State savings bank Spuerkeess and the List, in April 2023, announced a collaboration that would allow the bank to use List’s climate models to carry out flood risk assessments. The partnership is meant to help Spuerkeess understand how flooding could have an impact on mortgages and potential changes in customers’ reimbursement behaviours, the bank’s head of sustainability Rudi Belli told Paperjam at the time. It would also help the bank to anticipate and mitigate risks.

Space data can help provide access to banking for individuals in remote areas or developing countries, Hoffmann added during the conference. It can also be used to geo-tag and time-tag photographs, which is something that could be useful when verifying insurance claims, or to assess the risk of insuring a customer or asset.

When it comes to investment services, space data could help assess the performance of businesses remotely or help investors in looking for investment opportunities. Satellite technology--which frequently collects a large amount of independent data--can be used to hold firms accountable, he said, and prevent companies involved in remote logistic chains or outsourcing systems from dodging their environmental responsibilities. Earth observation data can be used to track emissions from companies, Hoffmann argued, or monitoring the impact of human activities like deforestation or loss of biodiversity in specific areas.

Opportunity for Luxembourg

Research on the topic is ongoing, Hoffmann concluded, but the use of space data in the financial sector could complement current approaches.

In addition, this may also be an opportunity for Luxembourg in general. The grand duchy’s space ecosystem has been built up over the past years, he said, pointing to satellite and global telecommunications expertise from SES and Earth observation data stored by the Luxembourg Space Agency. The country has a lot of competencies around artificial intelligence, and, combined with the ecosystem, there’s an opportunity to have a “made-in-Luxembourg” product that could serve the sustainable finance sector.

Lydia Linna

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