Houston, we have a problem: Can satellite information bridge the climate-related data gap?

Central banks and international supervisors have identified the difficulty of obtaining climate information as one of the key obstacles impeding the development of green financial products and markets. To bridge this data gap, the utilization of satellite information from Earth Observation (EO) systems may be necessary. To better understand how, we analyze the potential of applying satellite data to green finance. To this end, first we perform an illustrative use case example, computing the impact of a wildfire using different satellite data sources. Then, to extend our knowledge about this new data type, we run a systematic literature review of recent academic studies using topic modeling to uncover which research domains of green finance currently utilize satellite data. We find the following five clusters: (1) physical risk materialization (including both acute and chronic risk), (2) deforestation, (3) energy and emissions, (4) agricultural risk, and (5) land use and land cover. We conclude providing a comprehensive analysis on the economic materiality of this alternative data source, understanding how it is enabling financial innovations in products such as thematic bonds or carbon credits, as well as adding new layers of information to other data sources which are currently available (e.g., geo-location of assets and estimation of climate hazards), or enhancing the reliability of self-reported data of corporates, thus providing a baseline reference for several central bank functions, such as micro- and macro-prudential supervision.