Houston, we have a problem: can satellite information bridge the climate-related data gap?
Series: Occasional Papers. 2428.
Author: Andres Alonso-Robisco, Jose Manuel Carbo, Emily Kormanyos and Elena Triebskorn
Sustainable finance
- Climate change and green transition
- Quantitative methods
- Financial risks
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Abstract
Central banks and international supervisors have identified the difficulty of obtaining climate information as one of the key obstacles to the development of green financial products and markets. To bridge this data gap, the use of satellite information from Earth Observation (EO) systems may be necessary. To better understand this process, we analyse the potential of applying satellite data to green finance. First, we summarise the policy debate from a central banking perspective. We then briefly describe the main challenges for economists in dealing with the EO data format and quantitative methodologies for measuring its economic materiality. Finally, using topic modelling, we perform a systematic literature review of recent academic studies to identify the research areas in which satellite data are currently being used in green finance. We find the following topics: physical risk materialisation (including both acute and chronic risk), deforestation, energy and emissions, agricultural risk and land use and land cover. We conclude with a comprehensive analysis on the financial materiality of this alternative data source, a mapping of these application domains to new green financial instruments and markets under development, such as thematic bonds or carbon credits, and some key considerations for policy discussion.