Application of Artificial Intelligence in Carbon Accounting and Firm Performance: A Review Using Qualitative Analysis

Abstract

The increasing role of the corporate sector in global carbon emissions has raised significant concern among stakeholders, leading to a thorough reassessment of corporate responsibility. Corporations, directly influencing society due to their carbon emissions, acknowledged as externalities, are facing growing pressure to tackle this environmental challenge actively. As a reaction, companies are increasingly implementing carbon accounting and other environmentally conscious practices in line with a broader dedication to comprehensive environmental ethics. The accounting department, tasked with incorporating carbon accounting into non-financial reports alongside regular financial statements, encounters adoption obstacles such as limited awareness, insufficient expertise, unclear guidelines, and a lack of standardized terminology. This paper conducts a comprehensive study to evaluate the feasibility of using artificial intelligence (AI) solutions in carbon accounting and its subsequent effect on firm performance based on the well-established effectiveness of AI in financial reporting and accounting tasks. As of 2021, Saudi Aramco, the foremost emitter of carbon dioxide worldwide, accounts for more than 4 percent of global Greenhouse Gas Emissions. This highlights the pressing necessity for intervention in this industry. Moreover, the study highlights electricity and heat production as the primary global sources of carbon emissions. The research demonstrates a clear link between effective carbon accounting practices and improved firm performance, especially when stakeholders are highly aware of sustainability issues. Nevertheless, the paper highlights the considerable obstacles and the urgent requirement for extensive advancement in AI applications to fully exploit its potential as a significant resolution to the complexities of carbon accounting. The study is limited by the wide range of accounting standards companies use to disclose their environmental impact and a need for more information on using artificial intelligence in carbon accounting. The research highlights the crucial significance of collaborative endeavours in promoting AI solutions to strengthen carbon accounting practices, thereby enhancing corporate sustainability and overall performance.