Impact investment preferences for carbon target difficulty, progress and science-based approval

Abstract

Alongside sustainable finance regulations, the new European Sustainability Reporting Standards introduce the need to disclose carbon target difficulty and the science-based nature of targets to enable better investment decisions. However, investment preferences towards established target attributes and emerging ones like target progress are understudied, especially in impact investments, where they can signal the potential for desired emission reduction beyond previous emission levels. This study uses a discrete choice experiment in Sweden with potential impact investors towards climate change mitigation to elicit their preferences towards progress on carbon targets, target emission reduction level and science-based approval for more or less emission-intensive firms. The findings suggest that respondents favour many target characteristics independently and in interactions with other carbon information. Results of the latent class analysis further suggest preference heterogeneity towards carbon targets to stem from attitudinal-, cognitive-, knowledge- and socio-demographic characteristics of individuals.