Sustainable investment: time to define what it means


Text by Joakim Sandberg, Wallenberg Academy Fellow and Associate Professor at University of Gothenburg, also Associate Researcher at Misum

The financial industry has shown a growing interest in issues concerning sustainability, both social and environmental topics, over the last 20 years or so. According to some calculations (although they are probably exaggerated), Swedish investments with a sustainability profile amount to roughly 7-10 trillion SEK today. That would be about double the size of the Swedish real economy. A total of 38 fund companies, with a collective 670 fund options, participate in an industry initiative called “the Sustainability Profile” ( This explosion of supply is of course promising for the end consumers, since it becomes easier to find savings options that integrate sustainability concerns. However, voices are being heard that not all funds have equally high ambitions in their so-called green options and that the quality in this regard is varied.

A central problem for consumers is to navigate sensibly through this jungle of products. As noted in a recent report by Konsumentverket (Rapport 2017:5 Om konsumenters möjlighet att välja hållbara investeringar), there are many challenges for most consumers, such as getting to grips with a large quantity of complex information and struggling to understand the concrete sustainability results. One of the central solutions proposed by the report is external and credible eco-labelling of investment options. Such eco-labelling has worked well in other fields, such as groceries and energy. Eco-labelling of investment products could help consumers greatly through identifying the most ambitious funds, assessing the concrete sustainability results of their efforts, and also communicating this in a simple and easy-to-understand manner on the market. This is likely to raise the quality standards in the industry.

Earlier this month, the Swedish Forum for Sustainable Investment (Swesif) hosted an event to introduce and discuss some of the eco-labelling schemes that now are being developed (more info on the event here). Presentations were given by Morningstar, ISS-Ethix/Climetrics, Ecolabelling Sweden (Svanen) and the Responsible Investors Alliance Sweden. These are not the only eco-labelling initiatives currently going on, but they may be a representative share. What became clear during the event is that the initiatives actually point in somewhat different directions: they rest on partly differing ideas of what sustainability consists in (E, S or G); how companies should work with this; what measures (qualitative or quantitative) are suitable; what baselines are adequate for the measures; and so on. What was perhaps most striking were the seemingly different visions of the ideal of sustainable investment: whereas some value precaution, integrity and attention to detail; others rather value effectiveness and “impact”.

The conclusion from all of this seems to be that we need to define more clearly what is meant by sustainable investment. This is, at bottom, a philosophical issue that I have spent many years of my research career on. I have identified two main philosophical understandings of, or perspectives on, sustainable investment: According to the “moral purity perspective”, on the one hand, sustainable investment is fundamentally about choosing the right companies to invest in since the ethics of the investment depends on the ethics of the underlying company (in a backward-looking manner). So, for example, it is better to invest in wind power than in coal since the former simply is a more sustainable industry. According to the “moral effectiveness perspective”, on the other hand, sustainable investment is about influencing the underlying companies to make a difference for society (in a forward-looking manner). That is, the most sustainable investment is not necessarily that which is most “pure” but rather that which is effective in making the world a better place. (For an overview of this research, see this article.)

The challenge that I see ahead of us is to use this kind of research to construct a more robust and research-driven eco-label for investment products. There are many ways in which this can be done. In a report for the Swedish Society for Nature Conservation (Naturskyddsföreningen), I have summarized international research on the effectiveness of the investment strategies used by so-called sustainable funds (find the report here). In brief, the results indicate that a positive investment strategy, especially one that targets small or new firms in great need of capital, is more likely to be effective than a negative investment strategy, i.e. the simple avoidance of large companies in unsustainable industries. There may also be opportunities for funds to influence the underlying companies through owner dialogues, but much more research is needed here. The report gives us a rough roadmap for what investment strategies that should be promoted by a progressive eco-label in the field, i.e. one that follows the moral effectiveness perspective. I will now be working with some of the organizations noted in this text to hopefully make the proposed eco-labels both more progressive and more easy-to-understand for end consumers. Our overarching hope is of course that this research makes a difference for the quality of sustainable investment opportunities in Sweden.

This is what we do at Misum; research that aims to be of both high academic quality and, at the same time, high usability for sustainable market actors.

Text by Joakim Sandberg, Wallenberg Academy Fellow and Associate Professor at University of Gothenburg, also Associate Researcher at Misum

In search of sustainable markets – look for interaction between market practice and policy practice


Text by Lars-Gunnar Mattsson, Professor Emeritus in Business Administration, Stockholm School of Economics,  and researcher at Misum

Public and private concern for sustainable development is a megatrend. To what extent are markets part of the problem or part of the solution? Or maybe both? How can government policies aid or hinder development of sustainable markets? Such questions are fundamental but arguments are most often developed from a predetermined, or taken for granted political and/or theoretical standpoint about markets. My argument is that we need to know much more about how markets function in practice and about interaction between market practice and policy practice in order to better understand sustainable development in a market economy.

There is, surprisingly, hardly any conceptual discussion in the literature and no convincing empirical findings that identify a sustainable market! I argue that a market is sustainable if it in the long run substantially promotes achievement of sustainable development goals. Thus a sustainable market must be dynamic, adapt to new scientific findings, discontinue unsustainable practices, be effective as regards technical and social innovation and consider external diseconomies, and external economies. Thus, somewhat paradoxically from a linguistic point of view, to be sustainable, and keep sustainable, change is necessary. Markets are not a priori given. They are continuously shaped and reshaped by businesses and individuals involved in interaction as sellers and buyers and influenced by public policies. Thus, change is an inherent characteristic of markets.

To make my point, I will refer to the Paris climate agreement in December 2015.  The Agreement was, given earlier failures, seen as a remarkable political and policy achievement. It was based on natural science studies of eco-system processes, acknowledging that human activities cause green-house gas emissions that lead to global warming. The Agreement left it to each government to develop and implement climate mitigation policies.

Human activities affecting green-house gas emissions are, directly and indirectly related to production and consumption of goods and services. In market economies interaction and exchange between actors within a market, and importantly between markets, serve to coordinate and allocate resources, as well as to develop and co-create resources. As government agencies now develop and implement policies based on the Paris agreement, it is important to understand if and how these policies help to perform sustainable market practice or perhaps hinder it. For instance, rules for public procurement might present examples of both positive and negative effects on sustainability.

Policy practice has a content rich tool-box to select a policy mix from. Economic incentives/disincentives, regulations and norms of different nature, investments in infra structure, education and research, as well as in reorganization of policy agencies, information campaigns (“nudging”!), etc. Policies most often leave a considerable degree of freedom on how to comply with them in market practice, a fact that makes it even more important to study market-policy interaction.

With reference to the UN Agenda 2030, one of the 17 Sustainable Development Goals (SDG 13) specifically concerns climate.  To reach the objectives agreed on in Paris, due to the overarching influence of climate change, policy and market practice related interaction are particularly crucial as regards SDG 7 on Energy, SDG 9 on Innovation and Infrastructure, SDG 12 on Production and Consumption and SDG 17 on Partnerships.

Concern for sustainability has generated an increasing number of initiatives in business, civic society and academia. Individual business-focused sustainability initiatives are relevant for understanding interaction between policy practice and market practice. CSR, Corporate Social Responsibility, aims to counter-balance the rise of share-holder value as the prime objective of companies. CSR introduces stakeholder engagement and achievement of Triple Bottom Line results. It has stimulated a major and growing stream of research and practical implementation. CS, Corporate Sustainability, emanating more recently from business strategy literature argues that business practices should consider triple bottom line outcomes. Stake-holder engagement in the business is important. CSV, Creating Shared Value, is also an idea coming from business strategy literature. It suggests that a firm that builds social value propositions in its corporate strategic behavior, creates competitive advantage. According to CSV more public policy intervention in the market is not necessary, it might likely be harmful.

How do these acronym identified principles for individual corporate behavior in markets affect over-all market practice towards sustainability? How do they affect interaction between suppliers, customers and competitors?   If market practice becomes more concerned with climate mitigation, stimulated by the principles for individual firm behavior alluded to above, then policies concerned with the same problems might become more effective.

Interaction between policy practice and market practice is bi-directional. An example is the reshaping of the EU Emissions Trading System. The lackluster performance during the first periods have initiated substantial revisions of the system and it remains to be seen if the new EU policy will create a more sustainable market practice.  Policy-market interaction for sustainable markets is also dependent on sustainable policies.

Public and private actors interact in many cases as aspects of New Public Management. Recent examples in Sweden of out-sourcing of electronic services and public/private partnership demonstrate the problematic nature of creating sustainable markets and sustainable policies.

Research about sustainable development in general, and especially about climate mitigation engages researchers and research institutions in all natural, engineering and social science disciplines and their sub disciplines. In this context interaction between policy and market practice is an important phenomenon that should be studied in an interdisciplinary, and even transdisciplinary, perspective to better understand market economies from a sustainable development perspective.

Written by: Lars-Gunnar Mattsson, Professor Emeritus in Business Administration, Stockholm School of Economics, and researcher at Misum