By Prof. Kristjan Jespersen, Oda Solend and Anna Sophia Burri
In today’s global landscape, geopolitical risk (GPR) is rising in both frequency and intensity. War in Ukraine, rising U.S.-China tensions, trade disruptions, resurgent nationalism, and mounting global uncertainty all challenge the stability of investment environments. For investors, this creates a turbulent decision-making climate. At the same time, sustainable investments are becoming a central tool in the global response to climate change. Recognized by both policymakers and markets, they help redirect capital toward renewable energy, green infrastructure, and ethical developments. Investment into sustainable assets has grown exponentially, from $13.3 trillion in 2012 to over $30 trillion by 2022, with forecasts pointing to $40 trillion by 2030. But what happens to these investments when geopolitical instability rises?
This tension between growing climate urgency and increasing geopolitical volatility builds the starting point of our master thesis. Existing research primarily explores their relationship through quantitative models, focusing on market volatility or asset prices. A crucial gap, however, remains: How do sustainable investors assess GPRs? And how does this influence their investment decisions? That’s what we set out to explore.
How We Studied It
To unpack how GPR influences sustainable investments, we conducted a three-part qualitative study:
- GPR Mapping: We developed a comprehensive typology of 63 specific GPRs, organized into three overarching categories: geography, politics, and macroeconomics. This mapping helped us ground the study and design the next stages.
- Scenario-Based Workshop: We facilitated a workshop with six sustainable investors, using a geopolitical scenario to explore real-world sensemaking and decision-making processes.
- In-Depth Interviews: We conducted interviews with five sustainable investors and three geostrategic consultants to deepen our understanding of the internal and external dynamics shaping investment decisions.
What We Found
Our findings show that GPR influences sustainable investments in two key ways: through material disruptions and investor interpretations.
Investors increasingly see GPR as a structural and unavoidable factor in investment processes and decision-making. GPR shapes not just which investments are made, but how they are assessed, managed, and adapted over time. In many cases, decisions are influenced by perceived threats as much as actual events. We found that GPR influences decisions both before and after capital is committed. Prior to investment, GPR can act as a hard stop or shift strategic focus toward lower-risk regions. After commitment, especially in illiquid assets like infrastructure, investors adapt through ongoing monitoring, stakeholder engagement, or scenario planning.
However, the way investors respond to GPR is highly context-dependent. Some firms rely on informal, individual-level assessments, while others have formalized internal structures and public affairs teams. Organizational structures, exclusion criteria, previous experiences, informal norms, and external mandates all shape how investors interpret and act on GPR.
In other words, GPR influences both the rationale and the reality of sustainable investing, and it does so in ways that are filtered through both institutional pressures and personal judgment.
Interpreting Complexity: Our Contribution
By combining two theoretical perspectives – neo-institutional theory and sensemaking theory – we were able to connect the dots between organizational structure and individual interpretation shaping GPR assessments of sustainable investments.
Our thesis contributes to the underexplored literature on GPR and sustainable investing by showing how investors interpret, assess, and respond to geopolitical events in a world of growing complexity. Instead of treating geopolitics and geoeconomics as separate, we show how investors perceive macroeconomic and political threats as intertwined.
We also highlight the limits of quantification: GPR doesn’t always lend itself to measurable indicators. Its ambiguity requires judgment, narrative framing, and forward-looking models. Our study shows how qualitative inputs, like scenario planning, expert insight, and internal considerations, are crucial to making sense of geopolitical uncertainty.
By combining insights from both organizational structures and individual sensemaking, our thesis answers recent academic calls to bridge the macro and micro levels of analysis.
Together, these lenses allowed us to offer qualitative insights into the “how” behind GPR assessment and decision-making – complementing the dominant focus on quantitative research in this field.
What Sustainable Investors Can Do
In practice, sustainable investors should:
- Actively monitor GPR, both through one-off assessments and ongoing tracking.
- Use scenario analysis to explore potential future developments and translate qualitative inputs into quantitative investment impacts, thereby increasing both awareness and preparedness.
- Develop internal structures for coordination between investment teams and risk experts.
- Embrace nuance: GPR is interpretive, contextual, and messy. Trying to reduce it to a single metric can be misleading.
- Identify strategic opportunities: GPR can open up space for leadership and long-term impact. Turning uncertainty into advantage is a hallmark of resilient investing.
Final Thought
In an era where the world is heating up – geopolitically and environmentally – GPR returns as a top concern among sustainable investors. They need frameworks to understand, tools to adapt, and strategies to act amid uncertainty. This thesis is our small step toward helping sustainable investors navigate that uncertain future.
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.
Oda Solend recently completed her Master’s degree in International Business and Politics at Copenhagen Business School (CBS), with a minor in ESG. She will join KPMG as a Risk and Regulatory Consultant in August. Previously, she worked at Novo Nordisk, supporting innovation initiatives in the life science ecosystem, and volunteered with femella, a network organization dedicated to empowering female students and young professionals in their careers and personal development.