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By Prof. Kristjan Jespersen, Walter Bachmann, and Tobias Warkotsch 

In an era marked by escalating climate extremes and accelerating biodiversity loss, the urgency to preserve the world’s forests has reached a critical moment. Recent data reveals a dip in deforestation around 2020 – likely due to the global slowdown caused by the COVID-19 pandemic – followed by a sharp resurgence, with deforestation rates surging by 2023. Commodity-driven deforestation is responsible for 18% of global forest loss and remains a major driver of ecological devastation. Its impact is even more pronounced in tropical regions, where it drives nearly 25% of forest loss. This destruction is primarily fueled by agricultural expansion, with commodities such as beef, soy, and palm oil being major contributors, particularly in Latin America and Southeast Asia. If treated as a country, commodity-driven deforestation would be the third-largest emitter of greenhouse gases worldwide, surpassed only by China and the United States. 

Figure 1: Comparison of Greenhouse Gas Emissions in 2023 across countries and commodity-driven deforestation. Emissions are measured in billion metric tons of CO₂ equivalent (GtCO₂e). 

This trend is not just alarming; it is edging us closer to an irreversible tipping point. Without immediate and collective action, the damage to our planet’s carbon stores, water cycles, and ecosystems will be permanent, with catastrophic consequences for future generations. Stakeholders, including consumers, corporations, financial institutions (FIs), and policymakers, must recognize this as the critical and final opportunity to demand and implement transparent, accountable, and sustainable forest management, as the time for action is not just urgent but our last chance to prevent irreversible harm and secure a sustainable future. Our research, conducted at the Copenhagen Business School and supported by Federated Hermes Limited, uses data from the Forest IQ dataset to cast light on how corporations and FIs across different regions tackle (or fail to tackle) deforestation risks.  

This study leverages the Forest IQ database to analyze deforestation exposure and performance reporting across a diverse range of companies and FIs. Financial materiality for the value chain is excluded due to negligible significance and unreliable scores from limited dependencies. First, deforestation exposure assesses the extent to which firms or FIs are linked to high-risk commodity related activities, that are key drivers of deforestation. Finally, performance reporting evaluates the quality, transparency, and depth of entities’ commitments and actions reporting regarding deforestation and associated human rights issues.  

It provides a comprehensive perspective by examining corporate value chains – including producers, traders, manufacturers, and retailers – as well as FIs such as banks and asset managers. Below, we delve into the core findings from our analysis, highlighting the surprising disparities among commodities and regions, as well as the emerging opportunities that might hold the key to future solutions. 

Value Chain Findings 

The role of commodities in driving deforestation varies significantly across industries. In the following, the value chain findings focus on the three major drivers of commodity-driven deforestation captured by the Forest IQ dataset: cattle, palm oil, and soy. Like cattle, soy is predominantly produced in Latin America, whereas palm oil production is concentrated in Southeast Asia. 

Cattle remains the largest contributor to tropical deforestation, yet surprisingly, it exhibits low reported deforestation exposure. This discrepancy is likely due to underreporting and the prevalence of deceptive practices. Performance reporting scores are low, with limited public pressure and deforestation reporting largely absent. However, performance reporting tends to improve further down the value chain, despite the concentration of manufacturer headquarters in Asia, the worst performing region. 

In contrast, palm oil demonstrates the strongest performance reporting among commodities. Public scrutiny and certification schemes, such as the Roundtable on Sustainable Palm Oil (RSPO), have played a significant role in fostering transparency and accountability. Palm oil also shows the smallest gap between deforestation commitments and actions reporting, indicating that many firms in the sector have begun aligning their policies with measurable outcomes. Despite a high concentration of manufacturers in regions with weaker sustainability practices, such as Asia, these firms often outperform retailers due to the pressure to achieve certifications and meet consumer expectations for sustainable products. 

Soy’s performance reporting falls between cattle and palm oil, reflecting its position in the middle in terms of both sustainability initiatives and simpler supply chain dynamics.  

The analysis of sustainability commitments and reporting practices reveals nuanced trends that are hidden within the underlying datapoints. No deforestation commitments are more common than no conversion commitments, yet the latter demonstrate stronger adherence to additional criteria, such as cut-off dates and comprehensive coverage of operations. No conversion ensures no natural ecosystems are cleared, unlike no deforestation, which focuses only on forests. However, a troubling trend is the significant decline in commitments to protect activists at higher levels of the value chain, suggesting an increased tolerance for or use of intimidation tactics against scrutiny. Reporting often emphasizes positively framed metrics, such as areas free from deforestation, while omitting data on negatively framed outcomes, such as land already deforested. 

Financial Institutions Findings 

FIs hold substantial leverage in addressing deforestation but demonstrate considerable variation in commitments and actions reporting. Deforestation exposure is highly concentrated, with the top 10 FIs accounting for nearly one-third of total financial exposure. North America has the highest deforestation exposure, with few FIs bearing substantial financial risk. 

Performance reporting highlights significant trends. Palm oil consistently outperforms other commodities, followed by soy. However, performance distribution remains highly skewed, with the majority of FIs failing to meet minimal standards. Deforestation commitments reveal critical gaps. Cut-off dates for holdings are rarely implemented, and policy coverage often excludes key operational areas across FI portfolios. Human rights commitments emphasize labor rights but show limited progress on gender equality. While Free, Prior, and Informed Consent (FPIC) rights receive attention, indigenous rights and activist protection remain largely excluded. Actions reporting demonstrates a preference for superficial compliance measures, such as identifying non-compliance and implementing grievance mechanisms, rather than resource-intensive solutions. Active engagement with holdings is notably limited. 

Regionally, the European Union (EU) leads in overall performance reporting, with Asia following. European non-EU countries, Latin America, and the Middle East show average performance. North America performs the worst despite its high financial exposure, while Africa and Oceania lag. Oceania, however, excels in human rights commitments.  

Figure 2: FIs performance reporting scores per country. Darker blue indicates a better score, while lighter blue represents lower scores. 

Comparative Analysis: Value Chain & Financial Institutions  

The comparison between FIs and firms in the value chain highlights both similarities and differences in performance reporting. While firms in the value chain perform better than FIs, they still fall short of achieving sufficiently robust and reliable performance reporting. A key similarity is that palm oil consistently leads, with soy trailing behind. Across both FIs and firms, human rights commitments tend to outperform deforestation commitments, a trend that extends to actions reporting for the value chain as well. Notably, the EU, as a headquarters region, stands out as the best-performing region for both FIs and retailers, which is likely due to stricter regulations such as the Corporate Sustainability Reporting Directive (CSRD) and the EU Deforestation Regulation (EUDR). 

However, important differences exist between the two groups. FIs tend to show stronger actions reporting than commitments, driven by their indirect involvement. Additionally, increasing regulatory pressure compels FIs to provide comprehensive deforestation reporting. On the other hand, firms within the value chain show stronger commitments compared to actions reporting, largely because of their direct control over impacts. Public scrutiny often prioritizes commitments, but implementing tangible actions remains a significant challenge. Furthermore, Asia emerges as the weakest region for the value chain, attributed to low regulatory enforcement and the prioritization of food security concerns. These findings underscore the varying dynamics shaping performance reporting across FIs and the value chain. 

Opportunities in Fighting Deforestation 

Agroforestry has seen only a few trial runs across commodities, making its use relatively uncommon despite its potential. Certification schemes are more widely adopted but face clear challenges, particularly with enforcement and credibility. However, there is a positive outlook on leveraging satellite imagery, artificial intelligence, and on-the-ground investigation technologies to monitor and combat deforestation effectively. FIs also hold significant influence, as they can exert pressure on companies to implement deforestation-free policies, driving meaningful change in supply chains. 

Conclusion 

In conclusion, preserving the world’s forests in the face of commodity-driven deforestation is a critical challenge with far-reaching ecological, social, and economic implications. This study sheds light on how value chains and FIs are navigating deforestation risks and responsibilities. While some progress is evident, particularly in the palm oil sector, significant gaps remain in both commitments and actionable measures across commodities and regions. 

The findings highlight the need for robust and enforceable deforestation-free policies, supported by advanced monitoring technologies like satellite imagery and artificial intelligence. FIs hold unique leverage to push for systemic change by aligning capital flows with sustainability goals, while firms within value chains must focus on translating commitments into impactful actions. 

Collaboration among governments, corporations, and FIs is crucial to improve practices, enhance transparency, and adopt innovative solutions, ensuring forest protection and sustainable futures for dependent communities. 

About the Authors:

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. 

Walter Bachmann is an ESG Research Assistant at Nordic ESG Lab and a master’s student in Finance and Investments at Copenhagen Business School. He holds a bachelor’s degree in International Business Administration from Tallinn University of Technology, graduating with First Class Honors. Before joining Nordic ESG Lab, Walter worked as an M&A Analyst at LNP Corporate Finance, where he actively participated in deals from start to finish. He is proficient in developing complex financial and valuation models, as well as creating investor and client presentation materials. This year, Walter is focusing on sustainability by pursuing a minor in ESG at Copenhagen Business School. He is also actively involved in Oikos Copenhagen, a student-led initiative promoting collaboration for a sustainable future. 

Tobias Warkotsch is an ESG Research Assistant at Copenhagen Business School’s “Making Oceans Count” project and a master’s student in Finance and Investments, pursuing a minor in ESG. He holds a bachelor’s degree in Business Administration and Economics from the University of Passau, Germany. Before joining the “Making Oceans Count” project, Tobias gained experience as a consultant intern at Roland Berger and KPMG, where he contributed to M&A, restructuring, and ESG projects, showcasing his expertise in financial modeling, due diligence, and supplier analysis. He also worked at BMW, where he focused on sustainability, including CO2 emissions quantification and the development of circular economy strategies.

By Prof. Kristjan Jespersen and Michele Sacchi

In an era where climate change and social inequality dominate global conversations, corporations are increasingly finding themselves at the center of scrutiny, with stakeholders demanding accountability not just for profit-making but also for their environmental, social, and governance (ESG) practices. The stage is set: NGOs (Non-Governmental Organizations) are leveraging their influence to drive corporate change through activism. This activism can have significant consequences on a firm’s financial performance, yet its true impact has remained underexplored. Research focusing on European public firms reveals how NGO campaigns influence stock values, offering insights into how companies navigate the pressures of sustainability-driven stakeholders.

The research delves into the relationship between NGO activism and the stock performance of 474 public European companies from 2014 to 2023. Through an extensive dataset of 13,907 NGO campaigns, the study employs event study methodology to measure how these campaigns impact companies’ cumulative abnormal returns (CAR). The findings paint a nuanced picture of activism’s influence on financial markets, highlighting key variables such as media coverage, NGO size, and the role of positive sentiment in shaping market reactions.

1. NGO Campaigns and Positive Stock Performance

Contrary to the negative expectations often associated with activism, the study found that, on average, NGO campaigns positively impacted firms’ stock prices. This indicates that, while companies may face short-term backlash from activist campaigns, the long-term benefits of aligning with NGO goals can be economically rewarding. Firms with robust stakeholder relationships or those that engage proactively with NGOs are better positioned to benefit from these campaigns. This finding emphasizes the evolving role of corporations in balancing profit with purpose, demonstrating that businesses can enhance their financial performance by responding to societal and environmental concerns.

2. The Influence of Media Coverage

Interestingly, the study found that increased media coverage tends to reduce the positive impact of NGO campaigns on stock prices. While it might be assumed that heightened attention to NGO-led campaigns would amplify their effect, this finding suggests that extensive media coverage may create a perception of overexposure or sensationalism, diluting the campaign’s credibility. Investors may view such coverage with skepticism, fearing that it could lead to reputational damage or regulatory scrutiny. Therefore, firms under intense media scrutiny might be more vulnerable to market volatility, while those flying under the radar benefit from quieter, more focused activism.

3. The Role of NGO Size and Origin

Another critical finding is that the size and origin of the NGO significantly influence campaign outcomes. Large NGOs, particularly those based in the US, have a greater positive impact on European firms’ stock value. This could be attributed to the larger resources and greater reach these NGOs possess, allowing them to mount more effective and high-profile campaigns. Moreover, US-based NGOs, which often set global agendas, bring international attention to issues, thereby increasing the stakes for companies. European firms, therefore, benefit from associating with well-established NGOs that hold substantial sway in global sustainability debates.

4. Sentiment Matters: Positive vs. Negative Perceptions

The research highlights the critical role of sentiment in NGO campaigns. Campaigns framed with positive sentiment, such as collaborative efforts to enhance sustainability or improve social welfare, significantly boost stock prices. On the other hand, campaigns characterized by negative sentiment, such as those highlighting corporate failures or malpractices, tend to have less favorable or even detrimental effects on stock performance. This suggests that the narrative surrounding activism is crucial—firms that engage in positive storytelling and meaningful partnerships with NGOs can leverage activism to improve their market performance.

Why This Matters for Academics and Practitioners

The findings of this study are highly relevant to both academia and business practitioners. For scholars, it adds a quantitative layer to the growing body of literature on ESG performance, highlighting the tangible financial impact of NGO activism. This underscores the crucial role NGOs play as experts and advocates in setting new regulatory standards, helping define best practices in ESG. Furthermore, the study emphasizes the need for further research into secondary stakeholder influence, particularly how non-governmental players can reshape corporate strategies and market behavior. This shift reflects a new concept of the rational market player within the realm of Social Finance, where companies balance financial goals with social and environmental responsibilities. For practitioners, the research offers valuable insights into navigating the complexities of NGO activism. It shows that companies can mitigate risks and even capitalize on NGO campaigns by aligning their business strategies with societal and environmental goals.

As the world moves towards a more sustainable and socially responsible future, the relationship between corporations and NGOs will continue to evolve. Firms that embrace NGO activism as a strategic asset rather than a liability stand to gain not only in public perception but also in financial performance, driving long-term value creation in the process.

Acknowledgment:
We gratefully acknowledge Sigwatch for providing the dataset on NGO activism, which was instrumental in supporting the analysis and findings presented in this article.

About the Authors:

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.

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.

By Prof. Kristjan Jespersen, Walter Bachmann, and Naomi Villaruel.

In the evolving landscape of corporate governance, the role of Environmental, Social, and Governance (ESG) considerations has never been more critical. With global standards such as the IFRS S1, IFRS S2, and the European Sustainability Reporting Standards pushing companies to improve transparency and accountability, corporate boards in Norway are facing a pivotal moment. The sustainability expertise gap across Norwegian boards has emerged as a significant challenge, creating pressure for companies to elevate their governance structures to meet these evolving demands. The urgency is amplified by the forthcoming Corporate Sustainability Due Diligence (CSDDD) directive, which mandates clearer evaluations of sustainability efforts at the board level. This blog explores the burning platform of ESG expertise shortages in Norway and presents key findings from a recent assessment.

The pressing issue at hand is that most Norwegian boards are ill-prepared to navigate the complexities of modern sustainability demands. According to a recent analysis, 61% of Norwegian boards only meet minimal ESG standards, with none fully aligning their competencies with the sustainability challenges they face. This lack of preparedness is not only a problem of perception but also one of regulatory compliance, as boards are now required to incorporate sustainability risks into their financial and strategic oversight. The lack of professional experience in sustainable business practices—65% of boards report no relevant expertise—is a critical vulnerability. With global frameworks mandating deeper integration of sustainability, Norwegian companies risk falling behind without significant improvements in boardroom competency.

A standout finding from the assessment is the comparative underperformance of Norwegian boards, particularly when viewed against international benchmarks. Norwegian boards achieved a competency score of just 12%, falling below the global average of 16.4%. While marginally outperforming their Scandinavian peers in Sweden and Denmark, the difference is minimal, signaling a broader regional issue. Despite this, a small subset of Norwegian companies, such as Wilh. Wilhelmsen, stand out. Wilhelmsen’s board achieved an impressive 34% competency score, showcasing how diverse expertise can lead to more effective governance. The company’s performance highlights the critical role that board diversity and experience play in navigating complex sustainability challenges.

Several factors contribute to the overall deficiency in ESG expertise across Norwegian boards. The most significant area of weakness is the role score, which evaluates directors’ professional backgrounds in sustainability-related positions. A concerning 94% of Norwegian boards fall short of the average performance benchmark, underscoring the need for urgent improvement. The assessment also revealed that Norwegian boards heavily rely on academic qualifications, particularly in sustainability-related fields. While formal education is valuable, it is insufficient by itself to ensure robust ESG governance. Practical experience in implementing sustainable business practices is equally, if not more, important. This imbalance highlights a gap in professional sustainability experience that needs to be addressed through targeted board training and development programs.

The findings also suggest that Norwegian companies have significant room for growth in other key governance areas, such as service experience and committee engagement. No Norwegian board scored above 50% in the committee score, indicating that many lack the formal structures necessary to drive sustainability initiatives effectively. Without well-functioning committees dedicated to sustainability, boards may struggle to set realistic targets or effectively oversee their company’s ESG strategies. This underperformance in critical governance functions creates vulnerabilities that could hinder long-term success in a world where sustainability is becoming a non-negotiable business imperative.

In conclusion, Norwegian boards are at a crossroads when it comes to integrating sustainability into their governance frameworks. While there are some positive examples, such as Wilh. Wilhelmsen, most boards are struggling to meet the demands of the modern corporate governance landscape. The need for enhanced boardroom competencies in sustainability is clear, as global regulations and investor expectations continue to evolve. Addressing these gaps will require a multi-pronged approach, including targeted training, diversification of board expertise, and a more robust focus on practical experience in sustainability initiatives. Without such efforts, Norwegian companies may find themselves falling behind in a rapidly changing global marketplace.

For the full report, please visit: Norwegian Boards: Facing an ESG Expertise Crunch (cbs.dk)

About the Authors:

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.

Walter Bachmann is an ESG Research Assistant at Nordic ESG Lab and a master’s student in Finance and Investments at Copenhagen Business School. He holds a bachelor’s degree in International Business Administration from Tallinn University of Technology, graduating with First Class Honors. Before joining Nordic ESG Lab, Walter worked as an M&A Analyst at LNP Corporate Finance, where he actively participated in deals from start to finish. He is proficient in developing complex financial and valuation models, as well as creating investor and client presentation materials. This year, Walter is focusing on sustainability by pursuing a minor in ESG at Copenhagen Business School. He is also actively involved in Oikos Copenhagen, a student-led initiative promoting collaboration for a sustainable future.

Naomi Villaruel holds a Bachelor of Commerce & Accounting degree from the University of Galway in Ireland where she completed an internship at KPMG Dublin. She furthered her expertise as an ESG & Business Development Associate at Nossa Data, an ESG Reporting SaaS startup in London, where she assisted companies with their non-financial reporting and disclosures. This year Naomi is commencing a Master’s degree in Environment & Resource Management specializing in Ecosystem Services & Biodiversity at Vrije University in Amsterdam.

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.