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By Michele Sacchi, Bartolomeo Galli, and Kristjan Jespersen¹

Introduction

The Critical Minerals (CMs) market is experiencing an exponential. These materials are essential components of modern-day technologies, which are extremely influential in developing the necessary infrastructures to align with Sustainability commitments. The International Energy Agency regularly reports the developments in the CMs markets: its last report has identified the latest list of 50 minerals deemed ‘Critical’. A second categorization deemed central is that of Conflict Minerals, which account for the raw materials extracted in Areas of Conflict, potentially benefiting armed groups.

Both Mineral categories have been analyzed in the project. The Research aims to improve the knowledge of Portfolio Exposure to Critical Minerals, uncovering the most pressing issues and opportunities on which Asset Managers can engage with the Investee Companies. For this reason, the model evaluates the exposure to CMs of a global equity portfolio which includes 30 sustainable companies that operate globally. The Portfolio is built with the assumption that a strong ESG company profile drives for higher, long-term risk-adjusted shareholder returns. The global scope of the portfolio allowed for a comprehensive analysis that focuses on high-level considerations, which can be applied to a variety of industries, rather than having a sector- and region-specific approach.

Understanding CMs industry

The study’s first objective is to investigate the major risks connected to CMs industry and the operational mitigations. Research suggests that price volatility, geopolitical risk, supply chain risk, and environmental risk are the most important concerns in the industry. First, price volatility is calculated to identify patterns and breakdowns in market prices, using the thresholds provided by the European Commission report in 2014. Second, the geopolitical risk applies a multi-level approach that incorporates different levels of analysis, which aid in measuring the geopolitical landscape that contributes to generating risks for the core business of the investees. Third, the supply chain risk aims to establish the exposure to the Social Issues present in the companies’ supply chains, since the Social dimension is crucial in the extraction industry. Finally, the environmental risk aims to analyze the impact on the environment deriving from extraction. To achieve this, the environmental cost considers the hindered financial impact of extraction, employing a framework created to account for environmental costs in the business plans of mining projects.

As for the mitigation factors, within the companies’ most employed activities, the research identifies recycling, diversification, transparency, and scenario analysis. Recycling is studied as a remedy to reduce the reliance on virgin materials extraction and its value chain. Another mitigative action analyzed is the companies’ efforts to Diversify their Supply Chains, to alleviate the risks deriving from reliance on single suppliers for their needs of raw minerals. The next factor focuses on Transparency, as the process of openly and completely sharing information in a clear way, regarding the sourcing process and supply chain management. Finally, the research accounts for Scenario Analysis, by analyzing the alignment of the Portfolio companies with the Paris Agreement. For this factor, the level of accuracy and plausibility of the companies’ targets and strategies are analyzed.

Model

The second objective is to evaluate the portfolio exposure to CMs. The research uses a risk matrix for evaluating the Total Risk Score and the Total Mitigation Score for companies. These total scores are weighted employing the Expert Judgment approach. This methodology applies an unbiased grading framework to evaluate the most pressing issues regarding CMs. The weighting results show that Supply Chain and Geopolitical factors are considered the most influential risks related to CMs, while Recycling and Scenario Analysis have the highest weights as mitigative actions. Finally, the matrix presents a Total Company Score and a Total Portfolio Score.

Research suggests that the highest exposed companies also tend to exhibit the most robust mitigation strategies. Additionally, the model highlights the elevated influence of environmental and supply chain factors, due to supplier concentration and pronounced social risks associated with extraction processes, as well as a lack of standardized frameworks to evaluate the impact of extractive activities on the environment. Finally, the characteristics of the industry hinder a highly diversified supply chain. The companies depend principally on a few countries, among which China is the principal supplier of CMs, in particular of Rare Earth Elements, which are vital for renewable energy and electric vehicles. This results in one of the most important factors to consider for reducing the risk from CMs’ exposure. However, the lack of transparency, due to data scarcity concerning supply chain management and audits poses challenges to fully understanding the real potential of the model.

The future of CMs in sustainable investments

The future of CMs’ risk exposure in sustainable investment decisions is still uncertain yet promising. Incorporating this risk valuation represents an important step for alignment with the Paris Agreement goals and with the upcoming CSRD mandatory report regulatory framework, since the extraction of Critical Minerals generates important concerns for many industries’ Value Chains. However, questions arise regarding the effectiveness of the methodology, which will vary depending on the specific objectives set by the portfolio manager utilizing the model.

To address the challenges and achieve meaningful integration of CMs’ risk exposure, an important effort for the asset management sector is required. First of all, the asset manager has to identify the most important CMs for its portfolio, then simplify and adapt the model’s variables based on deeper proprietary information, and confront competitors’ results to outline mitigation strategies and engage effectively with the invested companies. Collaboration and knowledge-sharing with the International Energy Agency (IEA), other international organizations, and peers can accelerate the progress of methodology implementation. By integrating this model, the risk exposure can be reduced and the increased demand for sustainable investments can be tackled, leading to higher financial results and a higher volume of business, while positioning at the forefront of the Sustainable Investing Industry. Indeed, such integration would significantly help meet the sustainable investment goals, both in terms of financial and non-financial performance, and contribute towards the greater good of society.

Closing thoughts

The future of sustainability in the asset management sector remains of central importance. Investors are searching for sustainable portfolios and managers capable of reaching both their financial goals and values. The critical minerals industry, due to its importance for modern technologies and the green transition, is becoming one of the most important markets for Sustainable Development, so its challenges must be fully comprehended and tackled.

The comprehensive analysis provided by this innovative tool offers valuable insights for asset managers across a variety of industries. By utilizing this tool, managers gain a complete overview of their portfolios and can assess each company’s exposure to CMs. With this information, managers can make optimal decisions to build specific engagement strategies, address environmental issues by changing the portfolio’s structure, or maximize profits with price volatility insights. The model’s versatility allows for customization based on individual preferences and needs, with the ability to apply different weights to various factors. Additionally, the global applicability of the model enables managers to compare portfolio scores against benchmarks, providing crucial information on areas for engagement and contributing to a more responsible and sustainable financial system.

Therefore, by integrating this model into the portfolio analysis, the asset management sector can reduce exposure to CMs’ risk and align its practices towards sustainable goals for contributing to a more responsible and sustainable financial system.

About the Authors:

Michele Sacchi has worked in the finance team at By-Expressen, a bike messenger logistics and distribution collective company in Copenhagen. He is currently approaching the non-profit environment by participating in a volunteering project about microcredit in India.He is concluding his master’s degree in Applied Economics and Finance from Copenhagen Business School (CBS), where his research explored the impact of NGO activism on public European firms’ stock value, particularly highlighting the important role the NGOs should hold in reshaping the existing financial system. Michele also holds a minor in ESG and Impact Investments, during which he had the opportunity to develop this project with the team and Professor Kristjan Jespersen.

Bartolomeo Galli is a graduate of Innovation Management and Business Development at CBS. He has obtained a minor degree in ESG and Impact Investing. His research interest stays at the crossroads of the management of innovation in early-stage ventures and impact investing fields, to understand the tangible outcomes of impact techniques on ventures’ development. He is currently pursuing an internship at Antler, a leading early-stage venture capital firm. Concurrently, He is working at Novonesis, the leader in the Biosolutions industry, where he analyses the opportunities for commercial expansion of biosolutions for human health.

Prof. Kristjan Jespersen is an Associate Professor in Sustainable Innovation and Entrepreneurship at the Copenhagen Business School (CBS). Kristjan is an Associate Professor at the Copenhagen Business School (CBS). As a primary area of focus, he studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.

We would like to thank CWorldWide for developing and supporting the project led through CBS’s ESG Minor. The project led to the presented findings in this post.

1. The core research was conducted by the CBS students Georgiana Pascu, Anne-Sophie Haas-Duverger, Michele Sacchi, and Bartolomeo Galli ↩︎

By Finn Ole-Treusch, Pohsiang Huang, Janet Fraser, Pascal Hofstetter, and Prof. Kristjan Jespersen

Copenhagen Business School’s (CBS) commitment to sustainability is reflected in its academic projects. One such project involved a group of CBS student consultants who, as part of the ‘Consulting for Sustainability: Harnessing Business Models and Innovation’ course, collaborated with the international NGO ‘Preferred by Nature’. Preferred by Nature’s activities include conducting third-party audits for voluntary sustainability certification schemes, such as those from the Forest Stewardship Council (FSC). The student project focused on voluntary sustainability certification schemes, their effectiveness, and the challenges companies face in meeting these standards by reviewing relevant literature and by analyzing Non-Conformities Report (NCR) data from Preferred by Nature’s certification audits.

In the current global business landscape, sustainability practices are becoming increasingly vital. Voluntary sustainability certification schemes play a crucial role in promoting responsible business practices worldwide. These certifications help consumers make informed choices, yet their effectiveness and the hurdles faced by businesses in complying with them are often underexamined.

The growing importance of sustainability certification schemes is also driven by increasing legislative demands, particularly in Europe and specifically the European Union. As governments implement stricter regulations to ensure sustainable practices, the role of voluntary certifications becomes even more significant. These certifications not only help businesses align with legal requirements but also enable them to gain a competitive edge by demonstrating their commitment to sustainability.

The literature review revealed that the effectiveness of certification schemes varies greatly, especially between industrialized and developing countries. Industrialized nations tend to have a higher overlap between legal regulations and voluntary standards, likely aiding compliance. Additionally, anecdotal evidence showed certified farms have occasionally been found violating international laws, highlighting the need for further research in this area. The literature highlights mixed results regarding the trend of non-compliance over time. While there is an initial decline in non-compliance after the first assessment, this trend does not necessarily continue in subsequent reassessments. This indicates that sustained compliance remains a challenge. Also, companies often need to undertake significant preparations before audits; this preparatory phase is an under-researched area that warrants further exploration. Overall, challenges in certification audits include procedural inconsistencies, focus on processes over impacts, and issues with audit frequency. While certifications and audits are valuable tools, they are not a ‘silver bullet’ for ensuring sustainable practices.

Analysis of 40,000 certification records of Non-Conformities Reports (NCRs) from 2018 to 2023, supplied by Preferred by Nature’s certification audits, was completed and covered various aspects such as engagement year, certification type, country, and grading type. There are a large number of records from Covid time when Preferred by Nature mostly conducted remote audits with a focus on procedural elements of standards. This analysis revealed patterns in non-compliance across various categories, though specifics and details cannot be revealed here due to confidentiality.

Looking at the cases that included Non-Conformities (NCRs) showed interesting patterns and regional disparities in the number of NCRs per engagement across a broad spectrum of different certificate record types (“sustainability labels”) for both forestry, agriculture, and chain of custody. The data exhibited high regional disparities in the distribution of major and minor NCRs and showed that certain certificate record types exhibit a particularly high number of NCRs on average, especially forestry/agriculture certificate types in contrast to chain of custody types. Both the average number of NCRs per engagement and the share of engagements without any NCRs varied highly by region worldwide. Regional analyses for the engagement type (initial assessment vs. reassessment vs. annual audit) revealed cross-current patterns, leaving us with no clear findings.

In summary, we observed high regional differences in our dataset of NCRs and various trends and patterns, depending on different variables, highlighting the need to address procedural inconsistencies and variability in the audit processes and thereby improve the overall quality of all audits. To analyze qualitative and procedural aspects of the NCRs, audits, and auditors worldwide, – and to get away from just looking at numbers and categorized NCR checklists – it is indispensable to get on site in the corresponding agricultural regions and thereby find the root cause of existing issues, to ensure tangible sustainability impact. Our analysis has enabled us to identify clear trends that inform our subsequent recommendations.

Based on our findings, we propose several key recommendations for voluntary sustainability certification schemes:

• Enhance awareness and understanding of sustainable business practices among organizations and farmers, especially in critical regions and sectors.
• Address procedural inconsistencies and ensure certification schemes focus more on real-world impact than merely complying with a list of standard requirements.
• Ensure focus on on-site, qualitative results in participating organizations, rather than only quantitative data and complying with sustainability standard ‘checklists’.
• Further research the correlation between legal regulations and certification standards and factors affecting audit quality in different regions.

Moving forward, it is essential for stakeholders—including businesses, auditors, and regulatory bodies—to collaborate closely. It is crucial to note that there are diverse cultures and ways of approaching sustainability in the regions around the world, and uniformly applying sustainability standards predominantly developed by Western countries can be challenging. By sharing an understanding of sustainable practices and improving the consistency of audits, we can ensure that certification schemes support meaningful change in business operations worldwide.

In conclusion, voluntary sustainability certification schemes play a pivotal role in promoting responsible business practices. While there are challenges and areas for improvement, the insights gained from this study provide a strong foundation for enhancing the effectiveness of these schemes. By focusing on education, improving audit processes, and conducting further research, – also in a regulatory and legal context – we can help businesses achieve their sustainability goals and contribute to a more sustainable and equitable world.

Figure 1 Student presentation of project findings at Preferred by Nature offices in Copenhagen. Left to right: Finn Ole-Treusch, Pohsiang Huang, Janet Fraser, Pascal Hofstetter.

About the Authors:

Finn-Ole Treusch is a graduate candidate of the MSc in Industrial Engineering and Management from the University of Hamburg. He is particularly interested in renewable energies, climetech start-ups, sustainable product development and manufacturing and mobility. Alongside his studies he worked in strategy consulting, university research & teaching and metal manufacturing.

Janet Fraser is a graduate candidate of the Master of Business Administration (MBA) programme at the University of Otago in Dunedin, New Zealand. Her career to date includes work as an operations manager in pharmacy and higher education sectors. She is currently taking a career break to finish her degree. Her study interests lie predominantly in sustainability, general business strategy, and human resource management.

Po-Hsiang Huang is a recent graduate of the MSc in Money and Banking at National Chengchi University in Taiwan and was an exchange student at Copenhagen Business School. He is passionate about sustainable finance, climate investment, and climate change mitigation. His career spans market research, business consulting, and asset management. 

Pascal Hofstetter is a graduate candidate of the Master of Business Administration degree at the University of Bern, Switzerland. His interests lie in sustainability, business strategies and digitalization. He was an exchange student at Copenhagen Business School is starting a trainee program at a Swiss mobility firm. During his studies he worked for a major industry firm in the topics of process digitalization and product management.  

Prof. Kristjan Jespersen is an Associate Professor in Sustainable Innovation and Entrepreneurship at the Copenhagen Business School (CBS). Kristjan is an Associate Professor at the Copenhagen Business School (CBS). As a primary area of focus, he studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.

By Alexandre Dahman-Leloup, Marc Philippe Farahmand, Julian Matlok Johansen and Prof. Kristjan Jespersen

Indonesia, one of the most populous countries in Southeast Asia and the world’s third-highest CO2 polluter, houses Gojek-Tokopedia (GoTo). The Indonesian company set itself the goal to be a 24/7 solution provider for consumers with its pioneering tech platforms offering online shopping, food delivery, payment methods, etc. Additionally, the organization is driven by a mission to create a better world for future generations through serious and ambitious ESG goals. Being a facilitator of a B2B2B / B2B2C platform¹ more than 99% of their waste comes from their external partners. The major issue is packaging, especially food take-away packaging. Indonesia’s municipal solid waste (MSW) collection is hampered by insufficient policy, enforcement, funding, infrastructure, and stakeholder engagement, issues exacerbated by a growing middle class. The research is a case study solely focused on interpreting the secondary research of the company GoTo. The following findings are based on academic and grey secondary literature focused on the Indonesian market and comparable markets in the APAC region such as Malaysia. The research aimed to present recommendations for GoTo on a short- and long-term to reduce their waste.

The research question is as follows: How can GoTo reduce Scope 3 waste in Indonesia through strategic marketing and operational initiatives considering the limitation of having no decision-making power for the partners?

Looking deeper into the MSW in Indonesia most of it comes from residential homes and is mainly bio-degradable waste, which should be seen as a resource rather than just waste. It can be separated, composted, and reused. The second largest portion is (single-use) plastic, which ends up being turned into microplastics. This is a growing issue, which will not cease to grow until plastic waste is tackled properly. So why is GoTo tackling this issue? Not simply because it is the right thing to do, but because the double-materiality cost cannot be overlooked anymore, and when sustainability goals align with business goals, long-term value can be created.

GoTo’s contribution to lowering the CO2 emissions and waste of Indonesia is by mainly tackling their current packaging solutions for food delivery. Their external waste is driven by plastic waste (15,9%) right after food waste (25%). One major source of plastic waste is the packaging of food; for that, therefore, finding alternative packaging options is crucial. The main options available on the market are listed and explained in the following table.

Material	Pros	Cons	Costs (relative to plastic)	Products
Paper and Cardboard	Biodegradable, recyclable, renewable	Susceptible to moisture and damage	Generally expensive, but cost varies with coating and treatment	Boxes, Cartons, Bags, Wrappers, Cups
Glass	Recyclable, Inert, Preserves, Content quality	Heavy, Breakable, Higher transportation costs	Significantly more expensive	Bottles, Jars
Metal (e.g., aluminium, tin)	Recyclable, Durable	Expensive, Energy-intensive production	More expensive, but cost can vary based on recycling efficiency	Cans, Tins, Foils
Natural Fibres (bamboo, cotton)	Sustainable, Compostable, Renewable	Limited availability, Higher cost	More expensive, depends on sourcing and processing methods	Containers, Cushioning, Wraps
Biopolymers (PLA, PHA)	Compostable, Reduces plastic waste	Higher cost, Limited shelf life	More expensive	Packaging films, Containers, Bags

In Europe we can see that alternative packaging is widely used, mainly biodegradable plastics, recycled paper, and glass, pushed by the European Union regulations. In North America, plastic is still mainly used for convenience and cost-effectiveness. However, a growing trend towards sustainable options, such as recyclable paper and biodegradable paper has arisen recently. In terms of pure sustainability, in a market like Indonesia, biodegradable plastics and natural fibres such as bamboo and coconut husk are the most sustainable options. They are compostable, reduce landfill waste, and are derived from renewable resources, minimizing long-term environmental impact. Nevertheless, they are quite costly and could pose durability issues. When considering cost and sustainability, recyclable paper and cardboard are the perfect alternative packaging, as they are cost-effective, and sourced from renewable resources. They can be used on a large scale without substantial long-term sustainability damage with complementing process recycling processes. Additionally, these materials are biodegradable as well as a low carbon footprint.

Nonetheless, considering the business model of GoTo being a platform, the tech company needs a plan to motivate external partners (local restaurants) to implement the more costly sustainable packaging alternatives. Theoretical research suggests implementing a pull strategy by capitalizing nudging tools. A pull strategy creates market demand directly at the consumer level which forces the business to change their product or service offers to meet the new demand. In the GoTo case, it would mean creating consumer demand for a sustainable and conscious lifestyle through educational marketing campaigns. These campaigns can help consumers understand the benefits of sustainable packaging and drive demand for it.

Complementing the pull strategy, nudging tools can subtly influence consumer choices. Nudging, a concept from behavioral economics, influences consumers unconsciously in their purchasing behaviour. In practice, GoTo could implement nudging by creating default options when ordering such as smaller sizes, sustainable packaging materials, or removing cutlery/ napkins from orders.

Overall, the research has identified three main recommendations that GoTo can implement in the short-, medium-, and long-term to push their ecosystem to use sustainable packaging alternatives like recyclable paper and cardboard:

• Create consumer demand for sustainable options via an educational marketing campaign which indirectly creates market change.
• Implement sustainable default options for the consumer when ordering meals
• Implement a Green Badge in the app which informs consumers about restaurants that choose sustainable options such as recyclable paper and cardboard packaging alternatives. The variables that give a restaurant a Green Badge can be modified by GoTo; yet it should include the packaging alternative, local purchasing, and CO2 and waste reporting processes.

Crucial when implementing all recommendations is to transparently communicate it with their ecosystem and the government due to the underlying problem of a lack of MSW management infrastructure in Indonesia.

About the Authors:

Alexandre Dahman-Leloup is currently enrolled in the Master in Management at TBS education, and the exchange program at Copenhagen Business School. He is interested in CSR, focusing on how companies can minimize their carbon emissions.

Marc Philippe Farahmand is a recent graduate of the CEMS Master in International Management from the Michael Smurfit Graduate School of Business in Dublin and the Copenhagen Business School. He is interested in CSR and sustainability in the business context focusing on CO2 reporting accuracy and transparency.

Julian Matlok Johansen is currently enrolled at the Technical University of Denmark, studying an MSc. in Technology Entrepreneurship. He also holds a Graduate Diploma in Business Admin. and Innovation Management from CBS. His interest in sustainability stems primarily from the area of Business Design for Sustainability, how startups can create a better world tomorrow.

Prof. Kristjan Jespersen is an Associate Professor in Sustainable Innovation and Entrepreneurship at the Copenhagen Business School (CBS). Kristjan is an Associate Professor at the Copenhagen Business School (CBS). As a primary area of focus, he studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.

1. B2B2B or B2B2C is a concept in which three parties are involved; usually, one party is the middleman and adds value with its network. This is the same case for GoTo whioch connects various parties (businesses or customers) with their platform. ↩︎
2. Kaza, S., Yao, L., Bhada-Tata, P., & Van Woerden, F. (2018). Waste and society. In The World Bank eBooks (pp. 115–140). https://doi.org/10.1596/978-1-4648-1329-0_ch6 ↩︎
3. Food Standards Agency. (2024). Alternatives to single-use plastics: Results. Food Standards Agency. Retrieved May 29, 2024, from https://www.food.gov.uk/research/alternatives-to-single-use-plastics-results ↩︎

By Jonas Aastrup Nielsen, Andreas Elsgaard, and Prof. Kristjan Jespersen

Does ESG performance have risk protection properties for investors? According to evidence from the Russian invasion of Ukraine, it seems like it.

The European continent has faced significant disruptions as a result of the Russian invasion of Ukraine. This conflict has had profound implications for energy markets, supply chains, inflation rates, and business practices. These geopolitical ripples will only get more important and frequent as the world enters the highest level of geopolitical tension in modern times.

We found that European firms with higher ESG performance were associated with short-term downside protection with firms outperforming by roughly 0,5% of their market capitalization for each 20 ESG score points right after the outbreak of the invasion. The protection was most strongly associated with environmental performance where the protection amounted to 0,66% per 20 Environmental score points. The firm with an environmental score of 80 thus outperformed an identical firm with a score of 20 by 2 percentage points in the short term.

“Do ESG scores have risk protection properties for investors?“

Despite the growing body of literature on ESG, there remains a significant gap in understanding how geopolitical events influence market capitalization, especially with respect to ESG factors. However, this area has never been as important to examine as now where geopolitical tensions are rising globally.

To address this gap, our study employs a novel analytical framework to examine the short-term effects of ESG scores on market capitalization and examine the financial effects of the Russian invasion of Ukraine in the short term. We use a two-way fixed effects difference-in-differences model and a one-month observation window pre- and post-invasion. To capture further nuance, we apply continuous treatment strength across firms.

The study yielded two key findings.

1. Firstly, it was observed that ESG factors offered short-term downside risk protection during the initial outbreak of the Russian invasion of Ukraine.
2. Secondly, the Environmental sub-pillar of ESG demonstrated a persistent positive protective influence on market capitalization across diverse industries and geographies.

The market response to strong environmental practices highlights the growing importance of environmental considerations in investment decisions.

“Are good sustainability practices actually associated with geopolitical risk protection?”

Our study contributes to the growing body of literature on ESG by providing empirical evidence on the impact of the Russian invasion of Ukraine on the sustainability premium in European markets. The study’s findings highlight the resilience of ESG-oriented firms during periods of geopolitical instability and highlight the persistent positive influence of environmental practices on market capitalization. Between sectors, firms engaged in consumer staples, commodity materials and healthcare were found to have the largest short-term protection.

Geopolitical flashpoints (wars, conflicts, disruptions) will only become more common as global tensions rise. The risks associated with these irregular and uncertain events provide a unique challenge for investors and firms. Are good sustainability practices actually associated with geopolitical risk protection? This question becomes increasingly important to answer.

We propose several directions for future research. Extending the investigation to other geopolitical events and policy implementations would enhance the external validity of this study.

By looking at current conflicts such as the current Israel-Hamas war or other historical geopolitical conflicts, it may be possible to find insights for future conflicts such as any potential conflict between Taiwan and China.

As the world continues to grapple with geopolitical tensions and their economic repercussions, understanding the role of ESG in financial markets becomes increasingly important. Our study offers a valuable starting point for future research in this area, providing insights that can inform investment strategies and policy decisions. Ultimately, our research highlights the growing importance of exploring the interplay between ESG factors and geopolitical events in the analysis of financial markets. By advancing our understanding of the sustainability premium associated with geopolitical uncertainty and its determinants, we can contribute to a more informed and sustainable approach to investment and policymaking, fostering a brighter future for both businesses and society at large.

About the Authors:

Jonas Aastrup Nielsen is a Msc. Finance and Strategic Management graduate at Copenhagen Business School. His research interests are within supply chain disruptions and ESG. He has been working at Simon-Kucher & Partners and is currently at the supply chain and procurement consultancy Prokura as a consultant.

Andreas Elsgaard is a Msc. Finance and Strategic Management graduate with a Minor in Quantitative Methods in Economics, Business and Finance at Copenhagen Business School. His research interests lie within the intersection of finance and sustainability. He has been working at consultancies BCG and EY-Parthenon and is currently at strategy consultancy Monitor Deloitte as a consultant.

Prof. Kristjan Jespersen is an Associate Professor in Sustainable Innovation and Entrepreneurship at the Copenhagen Business School (CBS). Kristjan is an Associate Professor at the Copenhagen Business School (CBS). As a primary area of focus, he studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.

By Fabian Neiger, Ramon Zehnder, Marcus Alexander Strange Hanson, Miriam Khader, Johanna Franz, and Prof. Kristjan Jespersen

As climate change and the impact thereof intensifies, climate adaptation finance has become increasingly relevant. With the 2020 Green Deal, Europe has shown significant commitment to reaching its sustainability goals. However, achieving the set targets requires substantial funding, which goes beyond public sources. Private sector involvement is essential for the effective implementation of climate adaptation projects, as well as making sure they are completed within the aimed-for period.

Below, we map out the climate finance landscapes of Spain, Portugal, Slovenia, and the Czech Republic, showing the current state of climate adaptation finance in the assessed countries. Next, the roles of governments, banks, funds, and insurance companies are presented together with an analysis of the key investment criteria for these main private-sector persona. Based on this we identify opportunities and recommendations for enhancing private sector engagement. 

This blog post is based on a research project supervised by Professor Kristjan Jespersen from Copenhagen Business School (CBS) and Stella Whittaker from the EU Horizon CLIMATEFIT Project. By combining an extensive literature review with interviews with country facilitators of the target countries, and consultations with experts in climate adaptation finance we analysed the roles of key investor personas and revealed their perspectives as well as common investment behaviours.

Financial Landscapes

The climate adaptation landscape in Spain, Portugal, the Czech Republic, and Slovenia is extremely similar, characterized by a reliance on public funding. The funding primarily comes from European Union programs such as the European Social Fund Plus (ESF+) and the European Regional Development Fund (ERDF). In each country, national governments and municipal authorities also contribute to climate adaptation projects, while participation from the private sector remains limited but is gradually emerging

In the analysed countries, the private sector is beginning to include sustainability and ESG (Environmental, Social, Governance) criteria in their financial operations. Yet, the implementation of these practices is moving slowly. For instance, banks like CaixaBank and BBVA in Spain, NovoBanco in Portugal, and select insurance companies in Slovenia and the Czech Republic are starting to offer green financial products to their customers. However, this involvement is not yet fully integrated into investment strategies.

Roles of Key Personas

Governments play a crucial role in climate adaptation finance through direct funding and indirect incentives. They use various tools such as climate adaptation taxes, environmental subsidies, sovereign debt, public-private partnerships, and sustainability-linked loans to achieve their climate adaptation goals (see flow chart below). Governments are uniquely positioned to implement control mechanisms and drive large-scale adaptation projects.

Banks are major sources of funding for climate adaptation projects, though they have yet to fully integrate climate risks into their financial risk management. Recent extreme weather events (e.g., floods in Slovenia) have increased awareness of these risks, prompting some banks to adopt initiatives and standards for responsible investments. However, the overall adoption remains slow.

Insurance companies face significant risks from climate change and are beginning to incorporate climate adaptation into their business strategies. They recognize the need to protect natural ecosystems and align financial flows with the Global Biodiversity Framework. Insurers are mobilizing financial resources for sustainability projects and promoting greater transparency in environmental impact disclosures.

Investment funds, particularly pension funds, show a growing awareness of the need to invest in natural capital. However, challenges such as lack of proven track records, insufficient data, and limited understanding of sustainable finance hinder greater investments in climate adaptation projects. Funds typically prioritize financial returns but are open to long-term investments under the right conditions.

Increased private sector involvement in climate adaptation finance is urgently needed in the face of intensifying climate change impact. Currently, Spain, Portugal, Slovenia, and the Czech Republic are severely lacking climate adaptation projects. Key barriers include risk perception by the investors, lack of clear business models of the projects, and insufficient data on investment outcomes, which in turn deter private-sector involvement across the board. The Venn diagram below illustrates the various financial instruments used by both sectors, as well as those that require collaboration.

Recommendations

To address challenges and enhance private sector engagement, we recommend the following actions for the EU Horizon CLIMATEFIT Project:

• Establishing a central knowledge platform: Organize and curate up-to-date information on climate impacts, adaptation strategies, and case studies to enhance industry awareness.
• Assisting governments in leveraging existing tools: Advocate for regulatory changes that incentivize private sector investments and work closely with governments to utilize available tools effectively.
• Develop standardized metrics: Create metrics for measuring adaptation project impacts, including climate resilience, economic returns, and social equity, to help investors build robust business cases.
• Foster stakeholder collaboration: Engage stakeholders through networking events, best practice sharing, and collaborative projects to enhance private sector participation in climate adaptation finance.

Both public and private sectors play a critical role in driving climate adaptation finance. By enhancing knowledge sharing, leveraging existing tools, and fostering collaboration, significant progress can be made in mobilizing the necessary investments for a resilient and sustainable future. The EU Horizon CLIMATEFIT project is well-positioned to lead these efforts, bridging the gap between public authorities and private investors to achieve meaningful climate adaptation outcomes.

About the Authors:

Fabian Neiger is a recent graduate of the CEMS MiM program from Copenhagen Business School and Esade Business and Law School, as well as a graduate of the Msc Innovation and Entrepreneurship from Esade Business and Law School. His interest in sustainability and finding innovative solutions for a fairer world drives his passion for ESG research and the implementation thereof.

Ramon Zehnder is a graduate candidate of the MA in Management, Organizational Studies and Culture from the University of St. Gallen. He is especially interested in the complex interplay between private and public organizations in Sustainability and currently researching on CSR in professional sports organizations.

Marcus Alexander Strange Hansen is a graduate candidate at the Technical University of Denmark studying a Msc in Industrial Engineering and Management. He is interested in renewable energies and providing cities and households with green electricity, working part-time at TotalEnergies as a Business Developer focussing on renewables.

Miriam Khader is graduate candidate at the Technical University of Denmark studying a Msc in Transport and Logistics. She is driven by sustainability and civil engineering projects, looking to help shape the world to be liveable for all.

Johanna Franz is graduate candidate at the Technical University of Denmark studying a Msc in Industrial Engineering and Management. She is fascinated in finding solutions to make production more sustainable by not only optimising the processes, but also looking at the individual steps and discovering, where to improve on material choice and energy consumption.

Prof. Kristjan Jespersen is an Associate Professor in Sustainable Innovation and Entrepreneurship at the Copenhagen Business School (CBS). Kristjan is an Associate Professor at the Copenhagen Business School (CBS). As a primary area of focus, he studies the growing development and management of Ecosystem Services in developing countries. Within the field, Kristjan focuses his attention on the institutional legitimacy of such initiatives and the overall compensation tools used to ensure compliance. He has a background in International Relations and Economics.