AI in green financing: Catalyst for change or overstated promise?

Artificial Intelligence (AI) has become a revolutionary catalyst across various sectors, and green financing represents yet another area experiencing its profound impact. As the world faces mounting pressure to combat climate change, financial institutions and investors are increasingly leveraging AI to enhance sustainable investment strategies, assess environmental risks, and ensure transparency in green finance initiatives. This paper critically examines the role of AI in green financing, assessing whether it is a genuine catalyst for change or an overstated promise burdened by technological and regulatory limitations. AI-driven innovations are shaping green bond assessment, ESG (Environmental, Social, and Governance) scoring, carbon credit trading, and predictive climate risk modelling. These advancements highlight both opportunities and challenges in sustainable finance. AI's ability to process vast amounts of unstructured environmental data allows for improved decision-making. However, concerns regarding data bias, greenwashing, and the absence of standardised AI governance frameworks raise questions about its reliability and fairness. Machine learning models contribute to enhanced risk assessment and portfolio optimisation, yet regulatory inconsistencies and the opacity of AI decision-making processes often hinder their widespread adoption. Real world applications and case studies offer valuable insights into AI's effectiveness in driving green financial practices. Emerging trends, including AI-powered sustainability disclosures and blockchain-integrated AI systems, present promising solutions for greater transparency in green financing. This paper evaluates whether AI serves as a revolutionary enabler of sustainable finance or whether its potential is overstated, requiring stronger regulatory and ethical oversight to ensure meaningful impact.