Simulation methods for quantifying ESG risks

Abstract

ESG risks and opportunities are highly relevant as causes and drivers for positive or negative scenarios with a significant impact on a company's reputation or intangible assets. The following article deals with the relevance and assessment of ESG risks in practice. Special emphasis is placed on explaining the importance of stochastic simulation methods that enable a quantitative assessment of complex systems, such as environmental systems or social systems. The quantification of the financial impact of an environmental risk is illustrated using the currently particularly important topic of CO₂ emissions. The article shows that advanced tools of stochastics and probabilistics makes our knowledge more multifaceted and diverse, but not inaccurate.