An Exploration of Uncertainties in Translating CO2 Emissions Data for the Evaluation of Private Investment Risk

Abstract

Socially Responsible Investment (SRI) is a financial behavior that incorporates ethical, environmental and economic (SEE) risk criteria into private investment decision making. Investor demands for SRI has grown at a rapid pace in the last decade, tenfold in US alone with $6.20 trillion-worth of domiciled assets. However, as a priori links between some socio-environmental aspect of corporate activities and investment risk are yet explicitly identified, while more corporate entity-level environmental data are becoming available, some causal interactions of environment, social risks with investment risk are often too complex to define, significantly uncertain or else non-quantifiable. Using the expert elicitation (7 panels of experts from IFC, ADB, and private consulting and investment companies), this project explores how and what investment risks are actually perceived through environmental indicators; what and where spatial and temporal feedback mechanisms exist in the investment community in a way presumably different from the purely physical, natural environment. It also finds which corresponding investment behaviors would likely take place in response to their perceptions.