Sustainability in Financial Reporting: The Role of AI-Powered Predictive Analytics

Artificial Intelligence (AI) is revolutionizing sustainability reporting with greater accuracy, efficiency, and transparency in Environmental, Social, and Governance (ESG) disclosures. This paper uses a systematic literature review in line with PRISMA guidelines to explore how AI-based predictive analytics is improving sustainability-related financial reporting. Three research questions underpin this paper: (1) how AI-based predictive analytics is improving ESG reporting, (2) challenges and benefits in adopting AI, and (3) future trends in AI-based sustainability reporting. Research indicates that AI significantly enhances ESG reporting through data-gathering automation, trend identification in sustainability, and greenwashing minimization. AI-based predictive models enhance business decision-making through sustainability risk forecasting and regulatory compliance. Ethical risks, regulative uncertainty, high implementation cost, and data privacy are a few challenges that restrict AI adoption. New areas of focus include trends like explainable AI (XAI), AI-based ESG investment, and AI-based forecasting in finance. The study has direct applicability for firms to implement AI in ESG reporting and recommends policy interventions to introduce standardization in AI usage in sustainability disclosures. Future research should develop AI models tailored to small and medium-sized firms (SMEs) and investigate AI’s role in countering sustainability misinformation. With effective implementation, AI can revolutionize ESG reporting, enhancing corporate accountability and sustainability performance in the long run.