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


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