Promoting Green Investments Within the Retail Sector

(1)

IN

DEGREE PROJECT INDUSTRIAL ENGINEERING AND MANAGEMENT,

SECOND CYCLE, 30 CREDITS STOCKHOLM SWEDEN 2018,

Promoting Green

Investments Within the Retail Sector

A qualitative examination of ways to enhance private investor participation

GUSTAF ERLANDSSON ANTON WAHLSTEDT

KTH ROYAL INSTITUTE OF TECHNOLOGY

(2)

TRITA TRITA-ITM-EX 2018:747

(3)

Master of Science Thesis TRITA-ITM-EX 2018:747 Promoting Green Investments Within the Retail

Sector

Gustaf Erlandsson Anton Wahlstedt

Approved

2019-01-14 ^ExaminerHans Lööf Supervisor

Ulrika Stavlöt

Commissioner

Nasdaq Contact person

Ann-Charlotte Eliasson Abstract

The environmental problem has become more prominent in the last decade, and in the recent years there has been a number of alarming reports published on this topic. In order to fight the climate change, the financial industry can play a key role by directing their investments towards green projects and

sustainable companies, pushing companies to participate in the transformation to a sustainable world. The development of issued green bonds is evidence on that the financial market has started to allocate more money in the green market, and this development is expected to continue going forward. The

development is mainly driven by institutional capital, with only very little support from the Retail segment. Hence, the aim of this thesis is to provide the market with possible solutions on how to enhance the volume of capital invested in green products from this segment. Semi-structured interviews with 8 stakeholders on the market, together with seminar discussions on a TBLI Sustainability conference and thoughts obtained through a Sustainable Advisory Board at Nasdaq constitutes the foundation of this report in order to deduce patterns to why investors choose to invest or not invest in green instruments, as well as deducing the existing problems with the current market. The opinions are compiled and discussed in aspects concerning framework issues, definition issues, future outlook and policies. Our commissioner Nasdaq has helped guided the focus of this thesis.

Our interviews combined with current literature works as the foundation to the findings on the specific area which could be of interest to all stakeholders on the financial market, but more specifically to investors, financial institutions and the government. Key findings of this thesis shows that the market in general is in need of clear guidance from the government in order to be able to adapt to the changing world. Further, the lack of a standardised framework and assessment of green investments leads to low transparency and problems with measuring impact. This describes why private investors say they do value sustainability, but fail to invest in it. Better transparency and reporting would make it easier showing the impact of the investment, which ultimately would affect private investors in a positive way as investors valuing sustainability would obtain a tangible sustainability measure on their investment, resulting in that their utility from the investment is maximised. In order to enhance the market in the current state, the authors of this report states that government support towards fintech companies contributing to the development of transparency, reporting and impact would be of interest. The authors see that such a subsidy would yield a lot of value to all stakeholders on the market, including the Retail sector.

Key-words: Retail sector, Private investors, Framework, Green investments, Bonds, Subsidies, Fintech, Impact, Transparency, Definition problem, Rational choice, Behaviour.

(4)

Examensarbete TRITA-ITM-EX 2018:747 Främjande av Gröna Investeringar inom Retail-

sektorn

Gustaf Erlandsson Anton Wahlstedt

Godkänt

2019-01-14 Examinator

Hans Lööf Handledare

Ulrika Stavlöt

Uppdragsgivare

Nasdaq Kontaktperson

Ann-Charlotte Eliasson Sammanfattning

Miljöproblemen har blivit allt mer framträdande under det senaste decenniet, framförallt under de senaste åren då flertalet alarmerande rapporter har publicerats inom detta område. För att motverka

klimatförändringarna kan finansbranschen spela en nyckelroll genom att styra investeringarna mot gröna projekt och hållbara företag, och därmed driva företag till att vara med i omvandlingen till en hållbar värld. Utvecklingen av emitterade gröna obligationer är ett bevis på att finansmarknaden börjar investera mer pengar på den gröna marknaden, vilket förväntas fortsätta i framtiden. Utvecklingen drivs

huvudsakligen av institutionellt kapital, med endast liten uppbackning av Retail-segmentet. Syftet med denna avhandling är därför att presentera möjliga lösningar på hur man kan öka volymen av investerat kapital i gröna produkter från detta kundsegment. Semi-strukturerade intervjuer med 8 intressenter på marknaden tillsammans med seminariediskussioner på en TBLI hållbarhetskonferens och tankar från Sustainable Advisory Board på Nasdaq utgör grunden för denna rapport. Baserat på detta härleds mönster till varför investerare väljer, eller inte väljer, att investera i gröna instrument, samt befintliga problem med den nuvarande marknaden. Åsikterna sammanställs och diskuteras rörande frågor om ramverk,

definitioner, framtidsutsikter och marknadsfrämjande åtgärder. Vår uppdragsgivare Nasdaq har bidragit till att utforma inriktningen på detta arbete.

Våra intervjuer i kombination med aktuell litteratur fungerar som grunden för resultaten i denna studie, vilka kan vara av intresse för alla intressenter på finansmarknaden, men specifikt för investerare, finansinstitut men också regeringen. De viktigaste resultaten visar på att marknaden i allmänhet behöver tydlig vägledning från regeringen för att kunna anpassa sig till den föränderliga världen. Vidare leder bristen på ett standardiserat ramverk och frånvaron av hur man bedömer gröna investeringar till låg transparens och problem med mätning av effekter. Detta beskriver varför privata investerare säger att de värderar hållbarhet, men misslyckas med att investera i det. Högre transparens och bättre rapportering skulle göra det enklare att visa effekten av investeringen, vilket i slutändan skulle påverka privata investerare på ett positivt sätt, eftersom investerare som värderar hållbarhet skulle få ett konkret mått på sin investerings bidrag, vilket leder till att den personliga nyttan av investeringen kan maximeras. För att förbättra marknadens nuvarande tillstånd påstår författarna till denna rapport att statligt stöd till fintech- bolag som bidrar till utveckling av transparens, rapportering och inverkan skulle vara intressant.

Författarna ser att en sådan subvention skulle bidra med ett stort värde för alla intressenter på marknaden, inklusive den privata sektorn.

Nyckelord: Retail-sektorn, Privata investerare, Ramverk, Gröna investeringar, Obligationer, Subventioner, Fintech, Inverkan, Transparens, Definitionsproblem, Rationella val, Beteende.

(5)

Acknowledgement

First of all, we would like to thank our supervisor, Ulrika Stavl¨ot, for her valuable insights and guidance in this project. Her practical and academic experiences in this area has led to fruitful discussions and knowledge sharing, which has improved the quality of the thesis. Secondly, we are very grateful to our commissioner Nasdaq, and more specifically our supervisor at Nasdaq, Ann- Charlotte Eliasson. She, together with her team, has contributed to a number of valuable insights and gave us the opportunity to listen in on an Advisory Board call as well as invited us to participate in a TBLI Sustainability conference in Stockholm. Their support and availability has helped improved the thesis in a number of ways.

Further, we would like to thank our seminar supervisor Christian Thomann and our fellow students participating in our seminar group. Through your feedback and our discussions at the seminars, you have definitively had an impact on the outlining of the thesis. Lastly, we are grateful to all of our interviewees who have shared their opinions with us.

(6)

6.1.1 Why change is needed and why the financial industry needs to be a part of the transition to a sustainable society 33 6.1.2 Definition problems of green and sustainable investments 35 6.1.3 Advantages and disadvantages with green instruments . . 36 6.1.4 Applicable instruments for green investments seen from

a retail investor perspective . . . 38 6.2 Promoting green investments . . . 40

6.2.1 Do retail investors value sustainability, and what is the rationale behind retail investors investment decision? . . . 40 6.2.2 Long-term common goals for the industry (politics) . . . 41 6.2.3 Subsidies . . . 42 6.2.4 Taxation . . . 45

7 General Discussion 47

7.1 The future and the challenges for green instruments . . . 47 7.2 Promoting green investments . . . 48

8 Conclusion 53

8.1 Connection to Research Question . . . 53 8.2 Recommendation . . . 55 8.3 Future Research . . . 56

9 References 58

10 Appendix 63

10.1 Interview questions . . . 63 10.2 Initial e-mail . . . 65

(8)

List of Figures

1 Listed Green Volume on Nasdaq Stockholm in EUR (Nasdaq

Advisory Board, 2018) . . . 7

2 Green Bond’s share of Total Market - Main Market Corporate and Municipality Bonds (Nasdaq Advisory Board, 2018) . . . 7

3 Research Process . . . 24

4 Overview Interviewees . . . 26

5 Categories of findings . . . 32

(9)

1 Introduction

In the introduction section, the authors first present the background and prob- lematisation to the thesis. Following, the purpose and the research questions are stated. The section ends with the delimitation and expected contribution of this thesis.

1.1 Background

One of the most prominent and well known threats to our planet is the climate change. A prognosis made in 2016 was that the global warming will lead to a temperature increase of 4-6 ^◦C in the future, leading to raised sea levels, more frequent heatwaves and heavy rainfall, only to name a few phenomenons affecting our world (USGCRP, 2017; Climate Finanace Day, 2016). To handle the situation and work for a more sustainable world there are many environmental incentives. Among many there are green financing that aims to attract capital with incentives to address environmental sustainability. Also, the increase of green bonds are indicating a shifting momentum on the market and a positive trend of action (Climate Finance Day, 2016).

The financial industry has in the recent years tried to address the climate changes through introducing green bonds and other instruments for sustainable investments, showing evidence of an increase in possibilities for investors to seek out sustainable investing. Also basic saving accounts have started to show tendencies of being a future possibility to connect to sustainable investment incentives. Most people are concerned about the environment and self-interest is not solely driving personal satisfaction in decision-making (European Commis- sion, 2017). Given this, one can ask the questions; Why is a green investment not regarded as a standard on financial markets? Do financial markets fail to include investors desire not to harm the surrounding environment?

The green bond is one of the more prominent green instruments and the proceeds from these are used for climate friendly solutions. The market for green bonds and other green investments alternatives is an important tool in mit- igating the climate threat as it helps the world in the transition to become more sustainable. Something that the Netherlands has worked with since 1995 when they introduced green saving accounts to benefit sustainable investments (Finansdepartementet, 2018).

Recently the Swedish government signalled its desire to contribute to the development of the markets for green bonds, other green instruments and green savings accounts by investigating the outcome of realising a tax reduction or/and

(10)

subsidies for green investments with the incentives to make them more attractive to the retail sector. The inquiry is supposed to be presented in March 2020 (Regeringen, 2018).

1.2 Research Problem

To start counteracting the growing climate crisis and decreasing the strain and toll our society puts on the environment, the work towards a more sustainable future can be argued to need the support of significant investments and real- location of capital towards sustainable business. A possible solution to attract investors to more sustainable projects on the capital market is to benefit them in so called green investments. Something that the Dutch financial market has been pioneering (Finansdepartementet, 2018).

Today the majority of the green and sustainable investments comes from large institutional investors, as green instruments are not adapted to fit the private investors, and the average private investor lack the basic knowledge needed to understand the market. However, the retail sector represents an important portion of the needed capital to build a more sustainable foundation for society as a whole and addressing the underinvestment from this investor group is paramount in order to support a sustainable society (Eliasson 2018).

However, the retail sector represents an important portion of the needed capital to build a more sustainable foundation for society as a whole and addressing the underinvestment from this investor group is paramount in order to support a sustainable society (Eliasson 2018).

inspiring this sector to take responsibility and get involved in sustainable investing is paramount. Given this underinvestment from the retail sector, the market needs to address (Eliasson, 2018).

1.3 Purpose

The purpose of this thesis is to investigate possible ways to stimulate green investments within the Swedish retail sector. As mentioned, the Swedish government has put forward the initiative 2018:75 to analyse ways to use tax reductions or/and subsidies to make green investing more attractive. Regeringskansliet mentions these policy reforms as possible ways to inspire the retail sector and brings forward the Netherlands as an example where they have since 1995 used green saving accounts and funds in order to benefit the sustainable investors in the country (Finansdepartementet, 2018).

This project is requested by Nasdaq as part of parallelism to the Swedish government’s inquiry but also as an extension since this project aims to evaluate

(11)

solutions beyond methods related to taxation reliefs.

1.4 Research Question

The aim of this study is to answer the following research question:

How can green financial investments be enhanced within the Swedish retail sector?

We aim to answer the following sub-questions in order to help us answer our above stated research question:

• What are the challenges for green investments and what do the future look like?

• Which are the possible ways of promoting green investments to the retail sector?

1.5 Delimitation

We limit our study to research ways to attract private investors to green investments. We believe that this limitation will yield a valuable result as the market for green products is growing and the results could potentially be applied to other sustainable investments, one example being social investments. Further, a solution to the Swedish market will be presented and hence the report will not focus on making green investments more interesting to all markets and countries in the world. With that said, the result could potentially be used for inspiration to other countries.

In relation to our second sub-question, we will investigate different kind of policy enhancing actions that the government could take in order to enhance the market. Moreover, the study discuss these actions in general but do not focus on these should be implemented in the system, nor how the funding should be structured. However, this does not restrict the authors to discuss this topic briefly.

1.6 Expected Contribution

Our research is expected to contribute to financial literature, and the debate regarding the need for governmental intervention on the green financial market.

We will offer empirical data on the outcome of how green and sustainable investments could be made more attractive to retail investors and how to handle potential challenges linked to the financial market. If our outcome and solutions

(12)

shows valuable, there is a possibility that the government could use parts of this report as inspiration to their inquiry on how to enhance green investments in the retail sector, released at the latest in March 2020.

In addition to the above stated, results obtained from our study on the retail sector may as well be applicable on other areas of the financial market where increased investments are needed. Further, there is a possibility that the derived theoretical framework could work as an inspiration to the government when examining different policy enhancing tools to affect investment appetite.

(13)

2 Overview of the Green Investment Market

In this section we give a short introduction to the green financial instruments discussed in this report, and more in detail how well fitted these are to the retail sector. Keep in mind that most instruments can be created as ”green”, but the focus on the instruments discussed are the ones assessed to be most suitable for the private investors. In the end of this section, an update on the green financial market as of today is found.

Bonds

A financial instrument that can be designed in many ways with different tenor and can have both a variable and fixed interest rate. It is a financial instrument often utilised by government and corporates, and the holders of the bonds are referred to as a creditor or debtholder (Misamore, 2017). The market for green bonds has grown at an impressive pace over the last couple of years and is seen as the salient in this area within the debt spectrum. Supporting this is Figure 1 showing the development of listed green debt on Nasdaq in the Nordics, where green bonds constitute the majority of the total volume every year (Eliasson, 2018).

The proceeds from green bonds are used for climate friendly solutions, and the green bond itself, intends to offer the same return to investors as more regular bonds do. The market for green bonds and other green investments alternatives is an important tool in facing the climate challenges as it helps the world in the transition to becoming more sustainable. Benefits with green bonds are stated below (Climate Finance Day, 2016):

• Support = Supporting low-carbon and climate projects in the long term

• Attract = Green bonds new investors which broadens the investor base for issuers. It also gives the issuing company a positive reputational effect

• Preferences = Without sacrificing any financial return, investors help benefiting the environment through their investments

Structured Product

A structured product is an instrument that is created using a traditional security as underlying asset, such as an investment grade bond, and replacing its cash flow with other assets. Hence, the instrument can offer investors customised exposure to different asset-classes. It is a useful complement to traditional investments since it could be used to diversify or hedge an existing portfolio.

(14)

Since structured products are customised the investor will have to consider a potential lack of liquidity in the asset. Due to this property, the return of the investment is often realised closer to maturity date and hence structured products are more of a buy-and-hold asset (Anjou and Oxenstierna, 2017). As the instrument can be created with a green bond as underlying, and taking the flexibility variable into consideration, a green structured product could be a good complement in some retail investor portfolios. Hence, the instrument is assessed to have potential to be a part of building the green market.

Savings account

A savings account gives the account holder interest on its deposited amount.

Depending on policies, the deposited amount from customers to their saving account (sometimes called deposit account) can be used in order to lend to other customers (Deuflhard et al., 2018). As of today there are no green saving accounts offered by Swedish banks or institutions.

Exchange Traded Products

An exchange traded product, called ETP, is a type of security contract that trades on an exchange intra-day. The most common underlying asset to the ETP is a share, index or commodity. An exchange traded fund (ETF) is one type of ETP. It is a fund that is traded intra-day on an exchange. The fund can be built up by a number of shares, but since it is traded over the day and there are buyers and sellers of the fund, the fund obtains a market value which can deviate from the net asset value (NAV) of the fund (Anjou and Oxenstierna, 2017). Since the underlying often is a share one may think that the applicability to the green area is limited, which to some extent is true.

Green Investment Market

The market for green investments has grown at a fast pace during recent years and the year of 2018 is no exception. The biggest market for green investments in Sweden is the green bond market, which by July 2018 reached the total issuing volume of green bonds of 2017, and has since then experienced even more growth (Eliasson, 2018). At the same time as green bonds gain further traction, there are more instruments that adapts to the green market. For example, the first green structured product was issued in the summer of 2018. Since the summer, the market has seen a number of new issues of green structured products (Eliasson, 2018). The strong volume enhancement of listed green debt (defined as bonds and structured products) on Nasdaq, as well as the penetration of green bonds on the bond market, can be found Figure 1 and Figure 2.

(15)

Figure 1: Listed Green Volume on Nasdaq Stockholm in EUR (Nasdaq Advisory Board, 2018)

Figure 2: Green Bond’s share of Total Market - Main Market Corporate and Municipality Bonds (Nasdaq Advisory Board, 2018)

As a retail investor, in general, it is hard to invest in green products that gives

(16)

a healthy diversification as there are few instruments to diversify one’s own portfolio with. When it comes to green bonds, there is only one company, Advanced SolTech, that has issued bonds that retail investors are able to invest in. The amount of capital needed to invest in such bond is significantly lower compared to an ordinary bond. The structured products that are available to investors is a good option to diversify the portfolio and invest in green, however, the structured products that are issued today might not fit into some retail investors portfolios and hence is not an option. This leaves investors with the option to buy green bond funds. There are a few green bond funds in Sweden today, examples are SPP Green Bond Fund and SEB Bond Fund SEK, but they include green bonds that are not only Swedish (SEB, 2018., and SPP, 2018).

(17)

3 Theory and Literature Review

This section gives the reader an understanding of the theories and literature used in this report. It includes theory to help the authors to address the current market failures on the green financial market identified by the interviewees and the literature. Hence topics on efficient markets, investor behaviour and investor preferences in order to carry arguments for market failures. The chosen theories gives the authors the opportunity to derive an analysis and deliver recommendations based on data gathered through interviews.

3.1 Efficient Market Hypothesis

A well-functioning financial market is said to be efficient to a set of information, Q, if a securities price doesn’t change given that any of the information in the set, Q, is revealed to all investors on a market. The efficient market hypothesis therefore states that an efficient market always, correctly and fully, reflects all relevant information on a market (Burton, 1989). In the case of this thesis the lack of valid information in focus will be the data related to reporting of green behaviour among business entities. The formal concept of the Efficient Market Hypothesis was established by Eugene F. Fama and Paul A. Samuelson in the early 1960s (Delcey, 2018).

In Fama’s publication Efficient Capital Markets: A Review of Theory and Em- pirical Work the ideas of an efficient market is presented. Fama states that the hypothesis can be expressed in terms of market equilibrium modelling, where in this case the equilibrium is specified for prices that fully reflect all relevant information, and that market efficiency is defined in relation to information measures (Fama, 1970).

The efficient market hypothesis is an established concept in finance but opinions have been divided regarding its validity. Fama although firmly states in his publication from 2003, The Efficient Market Hypothesis and Its Critics, that even though financial academics is starting to incorporate models with psycho- logical and behavioural parameters, financial markets are more efficient than these models would have you believe (Burton, 1989; Burton, 2003).

3.2 Rational Choice Theory

Rational choice theory is a cornerstone within economic theory and has been for the last century. The principle concerns the behaviour of individuals facing choices that will in some regard affect the well-being of their person. The

(18)

theory is based upon the fundamental belief that individuals always make decisions based on the principle to maximise their personal utility and consequently minimising their loss (Briggs, 2017).

The focus when using rational choice theory to describe micro economic decision- making is the individual (methodological individualism), and all types of greater social behaviour (including social change) can be explained by first examining the rational decision-making of individuals. Rationality defined in the sense of micro-economic modelling is: A individual faced with limited resources makes decisions to optimise their projected satisfaction (Mathis and Steffen, 2015;

Crossman, 2018). Steven L. Green, Professor of Economics and Statistics, ex- presses the concept in terms of consumer markets. When there is a buyer and a seller, in trade, people act as to best satisfy their goals.

Further, typical when modelling agent’s preferences based on assumptions of transitivity and completeness, economists try to maximise so called utility func- tions. The case for modelling choice theory (making choosing between alternatives a must) goes back to what was mentioned in regards to the definition of rationality, limited resources (Green, 2002). An investor that values return, green values and other investment attributes, tries to satisfy its own utility in regards to choosing between available investment alternatives subject to their budget. Depending on what the market is offering in the sense of financial products and information, and subject to the underlying structure of the market place, this can mean including all, excluding one or several parameters.

Another vital part to define in the concept of rational choice theory is specifi- cation of preference. Historically the most commonly used perspective in economics is that of self-interest standard of rationality, meaning that a person’s objectives is to satisfy herself and values only results that directly affects the own person. Although less common, an alternative to the self-interest standard of rationality is the present-aim standard of rationality that explains a rational persons preferences as acting to satisfy any objective they hold when making a choice. Green (2002) conclude that explaining rational human behaviour by only regarding self-interest is not painting the whole picture and accepting all behaviour as a result of solely preferences is neither that forming a realistic model.

The self-interest standard of rationality analyse utility in regard to financial incentives for a person, in the sense that more is always better. An investor wants to maximise its return and a consumer of good and services simply want more (Hausman, 2014). This model has historically been good at predicting behaviour consistent with what has been observed in reality and compared to

(19)

the present-aim standard of rationality model, which has a hard time specifying what drives the non-selfish preferences, the ”selfish way of choosing” has been easy to define. Cases have although been made for models to include criteria for non-selfish preferences (Green, 2002).

3.3 Behavioural economics

The field that combines economics and psychology is known as behavioural economics. It is a theory that assumes irrationality among individuals. It states that no matter age or intelligence, individuals are rather myopic when it comes to maximising utility due to irrationality in the decision making process.

Most individuals usually make poor and rash decisions even when it is obvious that a certain choice would lead to better long-term outcomes (Kaplan et al., 2013).

Behavioural economics is rather close to the more standard economic models in the matter that agrees on the general topic that markets and incentives are variables that play key roles in shaping investor’s behaviour (Thorgeirsson and Kawachi, 2013). The difference between conventional economics and behavioural economics is that the latter theory acknowledges three variables connected to human traits: bounded rationality, bounded willpower and bounded selfishness (Mullainathan and Thaler, 2000).

3.3.1 Bounded rationality

The limited capabilities of information-processing among humans is referred to as ”bounded rationality”. It is the opposite to the idealised ”homo economi- cus” in traditional economics, which states a situation where humans take the perfectly right decision as they are invariant in preferences, perfectly informed and forward looking. The limitations among human explained in ”bounded rationality” leads to that they use mental shortcuts or rule of thumb in the process of decision-making. Something that Kahneman and Tversky (1974) has shown can lead to systematic errors, eventually leading to an unhealthy behaviour (Thorgeirsson and Kawachi, 2013). Mullainathan and Thaler (2000) has listed illustrative examples of where human decisions and judgements departure from rationality. These include for example overconfidence and over optimism. Thorgeirsson and Kawachi (2013) has three additional examples, namely anchoring, loss aversion and status quo bias, which is explained through dual process theory.

The short description of Overconfidence can be illustrated in various settings.

Investors that are overconfident in their own abilities is one example. In this

(20)

situation, the investors will execute trades even if they do not have all the neces- sary and true information, which is one explanation to the presence of anomalies in the financial markets (Mullainathan and Thaler, 2000). Anchoring explains how people’s judgements and estimates are biased towards an initial value, loss aversion explains how disproportional sensitive humans are in the matter of losing something versus gaining something, and status quo bias indicates that people prefer to stick to the status quo rather than changing their routines.

3.3.2 Bounded willpower

Bounded willpower is a concept that explains one of the reasons to why humans do not take the best decision in the long-term is attributed to the lack of self- control. These situations occur when individuals are caught in a situation where an intertemporal choice is involved, which is a decision where costs and benefits are spread over time. This could be for example preventive behaviours, where the cost of a behaviour today yields a benefit that occurs at some point of time in the future. Another example is sinful goods where an individual takes a decision to do something that is fun now, but is costly in the long run (Thorgeirsson and Kawachi, 2013).

3.3.3 Bounded selfishness

The third departure from standard economic theory, captured in behavioural economics is called bounded selfishness (Thorgeirsson and Kawachi, 2013).

Economists within this area stress that the primary motive for humans are grounded in their self-interest (closely related to present-aim standard of rationality). An illustrative example of this is the occurrence of the free rider problems, which economists mean is due to the fact that the general person’s private welfare must improve in order to any public good. However, there are examples where humans act selfless such as when conducting volunteer work or give money to charity (Mullainathan and Thaler, 2000).

3.4 Short-termism

According to Casey (2018), short-termism is a behaviour that is common among investors. It describes the short-term focus that investors have, which to some extent comes at the expense of proper long-term decisions. Because of this rationale among investors, implementing sustainability into capital decisions and strategic planning is rather hard. Investors extreme focus on quarterly earn- ings put extensive pressure on the management of corporations, whom needs to overcome this obstacle in order to focus on their long-term value creation and strategy. The result of this extensive short-termism leads to that less money

(21)

is allocated to research and development of sustainable products as well as less capital invested in effectively managing the own business regarding the environmental risk. This ultimately results in that companies miss out on investment opportunities that would result in a long-term net present value (NPV) that is positive (Casey, 2018).

However, there is a debate weather short-termism actually is bad or not, which has been present for many years. A widely cited article written by professor Laverty (1996) states that the evidence in the studies derived on this topic are inconclusive. Something that Martin (2015) further points out in his article, but where he takes the standpoint that short-termism is a problem. However, Martin argues that it is hard to prove short-termism and its consequences.

Mainly due to the fact that the data of which studies are derived from are contradictory. Further, performance of corporates is a complex product of adaptive systems. To draw conclusions on that x causes y is hence very hard (Martin, 2015).

3.5 Do Investors Value Sustainability?

In a recent report written by Hartzmark and Sussman (2018), investors behaviour regarding sustainability is examined by investigating in- and outflows of capital from the mutual fund market in the U.S. In March 2016, Morn- ingstar published a sustainability rating where over 20,000 mutual funds were ranked between one and five based on their holdings, where the lowest rank

”one” equals has the lowest sustainability according to Morningstar, and the ones that got the ranking ”five” has the highest sustainability. All funds were ranked on a percentile basis and out of the approximate 20,000 funds, 10% received the lowest ranking and 10% received the highest rating (Hartzman and Sussman, 2018).

By examining the in- and outflows of capital from these funds over the next eleven months, Hartzman and Sussman (2018) found that the lowest rated funds on average experienced quite large relative outflows the total fund size, whereas the highest rated funds experienced relative inflows. Funds rated in the middle, between ”two” and ”four”, were not significantly affected. This is, according to Hartzman and Sussman (2018), evidence on that investors value sustainability.

Another factor pointing towards that investors value sustainability and are interested is the fact that funds that received high rating in the Morningstar ranking obtained substantially more website visits and the ones with the lower rating had less visitors to their website.

The relevance of the result should be seen as indicative, this since Hartzman

(22)

and Sussman (2018) states the fact that the scope of the Morningstar rated companies is too small to actually determine that investors value sustainability on a general basis, this since the number of mutual funds treated equals only a small percent of the total capital invested in mutual funds market-wide.

Further, Hartzman and Sussman examines the performance of the funds with the Morningstar rating and they find no evidence that more sustainable funds perform better, in fact what they found indicates contrary. However, drawing conclusions on this set of data is hard due to the rather short time frame of 11 months.

Morgan Stanley Wealth Management released an article in 2017 supporting the above mentioned when it comes to the fact that investors value sustainability.

More specifically Morgan Stanley found that Millennials (defined as those who were born between 1980-2000) has the most positive approach towards sustainable investing. This statement is further supported by Waltr´e (2018) whom states that Millennials (in the study defined as people in the age between 18-35) value financial return and the impact attribute of the investment equally.

(23)

4 Governmental Policies

This section covers relevant literature on possible instruments the government could use in order to enhance private investors participation on the green financial market. Actions discussed are attributed to subsidies, tax relief and politics.

These are mainly argued for in the context of enhancing green fintech as the interviewees and the literature points towards failures on the market to capture all relevant information attained to green instruments. The interviewees pointed out innovative green fintech companies to have the greatest possibility to impact the development of the green financial market in the near term, as these could address problem with the sharing of green information. Arguments for targeting fintech in order to address this and other market failures will be outlined below.

4.1 Subsidies

Table 1 below summarises relevant litterateur on the governmental instruments.

Each instrument is connected to certain market failures they could be argued to address. The purpose of enhancing the retail sector’s participation in Sweden’s green financial market is to support sustainable business and in the long run strangle the capital pipeline towards environmentally harming business.

(24)

Table 1: Policy overview

Authors Class Policy instru-

ment

Market barriers / failures

Walker et al., 2018;

Miller, 2013; Olmos et al. 2012

Direct fiscal and financial incentives

Direct grants

Negative externalities, market’s failure to support seed-stage innovation

Walker et al., 2018;

Mazzucato and Penna, 2016

Co-investing (into companies)

Market’s failure to support seed-stage innovation

Miller 2013; Olmos et al., 2012

Loans and loan guarantees

Walker et al., 2018

Indirect fiscal and financial incentives

Tax incentives

NL Agency, 2010; Lars- son, 2013

Indirect fiscal and financial incentives

Tax policy re- warding investors

Undersupply of green investments

Alexandar and

Poyyamoli, 2014;

EPA, 2018

Systemic instruments

Subsidies educa-

tion Lack of knowledge

OECD, 2015; OECD 2018; Li et al. 2013

Regulatory measures

Long-term government guidance

Financial systems in- ability to change and support sustainable transition

A subsidy is a policy relief program, often initiated by a government, benefiting industries, corporations or individuals, and the initiatives are mainly financial relief to support an economic or social policy. In traditional economical market models, when the focus of implementing a subsidy is just the effect it gives to consumers and producers it is regarded to create dead-weight, i.e. a loss in total financial surplus in an economy. When subsidy programs is implemented by a government on a marketplace it changes the relative price of a good or service facing the producers and consumers, by making it cheaper to produce and consume a good or service while the government takes on the expense (Hutchin- son, 2016). The problem in this approach is that it does not include the effects

(25)

of producing or consuming to stakeholders outside the producer-consumer relationship. Negative externalities, such as negative environmental impact, of production and consumption, must be included if one is to calculate the total cost or benefit to society. A green investment would aim to finance companies and projects that minimise the negative externalities to society. When the total cost/benefit of the production and consumption of a certain good or service are greater/less than the cost/benefit to agents on a market, the market is showing a type of market failure (Helbling, 2017; Miller, 2013).

Traditional theory motivates intervention in at least one of following regards:

equity or efficiency (Carter, 2015). One further argument for mobilising private investments in the first place is that is eases the pressure on public capital and it utilises the skills and competitive nature of the private sector which arguments have been made for constitute a better foundation in achieving profit and growth. Important notices in Carter’s (2015) key takeaways is however that efforts to attract more private capital to developing countries only result in a decrease in returns if the number of projects and investment objects does not increase as well.

4.1.1 Direct vs indirect subsidies

Governmental relief programs can be achieved by direct or indirect subsidies.

A direct subsidy is an actual cash transaction to a target group or sector while an indirect government handout is a systematic non-cash relief that affects the target group under a policy. Examples of direct subsidy programs are, explicit governmental guarantees, interest-free loans and direct grants. An indirect subsidy program can on the contrary be an in-kind program, benefiting the people through goods and services, regulatory relief or implicit governmental guarantees. All non-cash reliefs are defined as indirect subsidies (UNEP, 2016).

4.1.2 Innovation policies targeting green fintech

The need for sustainable transformation in corporations and in the financial system implies a need for innovation. Innovation in firms’ core business and disruptive fintech, if rightly implemented and supported, can led this transformation (Banking Environment Initiative, 2017; Woodhead, 2011). Historically the level of capital that has reached entrepreneurial projects have been below optimal, and if innovation is to play a key role in the needed rebuilding of the financial system a substantial governmental intervention by policy reforms is needed (Walker et al., 2018). Innovation by which the end-value should reach private green investments, can be led by innovative technology directly supporting green technology, ideal electrical cars for example (affecting supply), and

(26)

also by innovation in the financial system through fintech technology supporting for example investors ability to track a portfolios carbon emission footprint (affecting intermediary market and indirectly demand), making investment more transparent and easy for the investors.

Innovation policy programs can be achieved through different governmental initiatives. Mazzucato and Penna (2016) have proposed an extensive mission- oriented policy framework for the Brazilian innovation system that according to them is fit to address society critical problems with disruptive innovation. The framework underlines the importance of cooperation between government, institutions and private sector in order to successfully support complete innovation cycles. Mazzucato and Penna (2016) further states in their study that in the case of the Brazilian government, there is a need to re-evaluate the philosophy of taking on risk, to achieve innovation driven transformation.

Olmos et al. (2012) argue that given the challenges green-tech innovation projects face in attracting needed amounts of capital, moving past current market hinders and given that firms often lack resources and knowledge to take a product to market, motivates direct support to ventures. Similar to the evidence and reasoning of Walker et al. (2018), and Mazzucato and Penna (2016), Olmos et al. (2012) argue that governmental policy should fill the investment gap from private investors, not replace them. Olmos et al., unlike the previous mentioned supporters for governmental policy, suggest direct grants as the main instrument of relief but argues that there is also some relevance in using interest- free loans, direct equity investments and other forms of subsidies. Grants and interest-free loans would allocate the most capital to each entrepreneurial firm fitting the criteria for relief, but would be very expensive for the government and there is a risk of overfunding a lot of ineffective innovation projects (Walker et al., 2018). Walker et al. conclude that governmental intervention through financial aid (co-investing and direct subsidies) in the earliest stage of innovation bring the most value to both investors and entrepreneurs.

Miller (2013) assort different subsidy programs and discuss two types of matching grants, i.e. direct cash grants to firms. Traditionally matched grants can be used when there are barriers for firms and innovation projects to enter a market or to grow past a certain stage and also when externalities can be identified. The challenge with traditional matching grants is that they can create non-sustainable companies that tries to fit the bill for a grant and it can create moral hazards in the receivers. To avoid these shortfalls one can try to minimise the amount of the grant that is paid upfront and try to connect it to firms and projects results. The other type of matching grant Miller (2013) discusses is

(27)

distributed through a so called challenge fund, where the capital already ini- tially is distributed on competitive premises. Firms and initiatives that could demonstrate social contributions, but would not survive without financial aid, would be eligible for a capital contribution from the fund.

Miller (2013) also discuss partial credit risk guarantees as a possible subsidy that could reach innovative firms on a market. The credit risk guarantees are used to give banks and financial institutions incentives to give loans to riskier enterprises and initiatives by the government promising to repay part of the loan if the innovative enterprise or initiative fails. These type of programs is often used when a government wants to push lending to specific target groups and take advantage of the fact that they move under other regulatory constraints compared to banks or financial institutions. Credit risk guarantees is utilised by more than half of the worlds governments, and they are mostly used to support a specific market location.

4.1.3 Education

In the US, the governmental organ EPA, Environmental Protection Agency, has since 1992 given grants to applicant’s education initiatives that wish to give audiences (students, educators or general public) the right foundation in order to take action on environmental issues. Agencies in the US can apply for grants by outlining a project’s agenda, action plan, budget proposition, contribution/outcomes and if possible, past performance. In total the program had given out 3,600 grants (totalling approximately 72 million dollars), by the end of 2016 (EPA, 2018). Unfortunately, there is a lack of studies evaluating how the environmental education program in the US has impacted true environmental action among the participants in the country. However, a similar program in India, environmental education for sustainable development (EESD), demonstrated significant differences in environmental knowledge and behaviour between the participants in an experimental program and non- participants (Alexandar and Poyyamoli, 2014).

4.2 Tax relief

A tax relief is a form of a financial policy with an incentive to decrease the amount of tax a person or an entity has to pay the government related to a certain program. There are different ways of using taxes as a tool to inspire investors on a market and in order for this project to estimate the feasibility of a certain solution we need to take into account the consequences of such programs, both for the government and investors in the retail sector.

(28)

The Dutch government has since 1995 had tax relief programs covering green funds and green savings accounts. In general, these investments have historically meant accepting a lower return compared to what the traditional market have been offering, but these programs have compensated investors through lower income tax on green money and tax-free capital gains up to 55,000 EURO/person. The green investors on the Dutch market have on average during this period received a 2.5 percent tax benefit and have come of even or made a slight profit by choosing green investments. The program has also meant that banks have been able to lend money to green projects at a lower cost (on average 1 percent). In 2010 the Dutch government paid out 150 million euros in tax-incentives under the program while 6 billion euros were invested in green projects in the country. These programs has also led to Dutch banks becoming among the leading socially responsible financial institutions since the programs was implemented and are taking part in achieving a transformation of the financial system (NL Agency, 2010).

In the late 1970s and early 1980s the Swedish government implemented several tax relief programs to increase overall saving in the country. The first saving account program, Skattesparande, gave the investor a tax reduction related to his/her income and between 1978 and 1982, 425,000 investors allocated their money in such accounts. The government also launched Allemansparande and Allemansfonder in 1984 where the later was an incentive to get private investors to use funds by removing the tax on capital gains. In 1990 1.7 million accounts had been opened in Allemanssparande and Allemanfonder combined, and in 2009 150 billion Swedish crowns had been invested by 4 million individual investors just in Allemansfonder (Ohlin, 2009). Historically tax relief programs have been a good instrument to attract private investors to new investment alternatives in the Swedish financial market (Larsson, 2013).

Common critic of these tax incentives is that the biggest surplus from the programs do not go to the investors or the companies but reaches the bigger banks. The reason for this is that the banks have been able to charge large fees related to investing in these funds and saving account since the investors have already been compensated for the investment by the government (Lindqvist, 2009; Ohlin, 2009; Strandberg, 2011; Berglund, 2015). Berglund (2015) further evaluates the performance of Allemansfonder and argue that the tax incentives have created lock-in effects in these funds that have resulted in market failures, since the banks can take out larger fees than normal without offering an increase in return or value to the investors. Given this one can argue the relevance and cost-efficiency of implementing similar tax relief programs with objective to mobilise a particular instrument segment and investor group.

(29)

4.3 Long-term government guidance

According to Li et al. (2013), governments play a key role in order to support the capabilities of industries’ innovation abilities. OECD (2015) put further emphasis on the need for governments to establish long-term goals regarding carbon objectives of which each industry can adapt to. By this, industries can address the climate change problem. OECD (2018) fortify that the laws and regulations decided by governments are important to all areas of life and business, and a cornerstone in achieving social and environmental goals. The fast pace of technological transformation and innovation, combined with the climate change problem the society face, puts extra pressure on governments to be agile and adaptable to the change (OECD, 2018).

OECD (2015) points out that the government, except for general long-term carbon emission reduction objectives, could set targets for a specific market. In OECD’s report (2015) the renewable energy market is treated. Applied to the financial market translates it into the government setting specific targets for sustainable investing, or general sustainability goals that the financial industry can adapt to. These could for example be long-term greenhouse gas (GHG) emission reduction objectives, of which the financial industry can adhere to, leading to innovation in product offering, eventually enhancing the investments in sustainable products among retail investors. The design of these long-term emission objectives could take various forms, such as reduction of GHG compared to historical levels or limiting the relative GHG emissions compared to

”business-as-usual” projections (OECD, 2015).

Long-term emission objectives are essential in addressing the climate change and support mitigation efforts on both a national and global scale. The objectives set could be accompanied by a system for emission-reporting. This would help to facilitate tracking and measuring progress, eventually paving the way for carbon pricing implementation (OECD, 2015). An example of this is found in Australia, which introduced mandatory GHG reporting for corporates two years prior to the establishment of their national carbon price, helping to minimise potential data problems prior to the pricing of carbon (Prag et al., 2012).

Similar examples of long-term government guidelines have been introduced in the EU, where certain companies have to report on corporate social responsibility (European Parliament, 2014). Another example is found in Denmark, whom introduced mandatory sustainability reporting for companies in 2012 (Danish Business Authority, 2013).

Introducing GHG emission reporting for corporates is challenging to governments since there is a risk of putting excessive burdens on companies, or not

(30)

giving companies the right incentives to act on their emissions (Kauffmann et al., 2012). Also, when introducing objectives and targets, not necessarily regarding GHG carbon emission, it is important for the government to consider eventual conflicts with other initiatives for supporting development of sustainability. Further, in order to succeed, the objectives and targets set should be rather ambitious, but still realistic and time-bound (OECD, 2015).

(31)

5 Method

Below our approach to research method is described and motivated, where we first describe the research approach followed by the research process as explanation for chosen approach. Further, the reliability and validity of the research is discussed and a description on how the empirical data was obtained and analysed. Wrapping up this section are some ethical aspects of this research.

5.1 Research Approach

At the start of the project, the explanatory approach was chosen in order to apply inductive and qualitative approaches throughout the project. Interpre- tivism is the paradigm that is adopted through this project since it is assessed to be a suitable paradigm to utilise our findings in order to create theories and assumptions that can be applied to the green financial markets in Sweden (Collins and Hussey, 2014). In addition, a thorough literature review was conducted in order to identify suitable frameworks that can be utilised by the stakeholders in the Swedish financial market in order to support green investments in the retail sector. The literature review will also support our ability to analyse findings from the interviews conducted. Findings from the interviews will consist of individual perceptions from people within certain areas in the industry and hence it is important to account for variation and subjective interpretations, both from the interviewee but also the interviewer.

Existing literature was used in order for us to investigate and further explain the context of which the research study was conducted. The analysis was conducted as a case study and used experienced professionals currently active within the industry to find relevant patterns of similarities and differences to support solutions to the research question. This way of execution is viable for our research since the interpretivism paradigm is applied as well as in-depth knowledge of the topic under investigation is needed (Collins and Hussey, 2014).

5.2 Research Process

A parallel procedure as shown below was used in this thesis, where the initial part of the thesis consisted of a literature review. The literature review was conducted continuously throughout the project, both before, during and after the empirical data gathering. Part two consisted of an empirical study where semi-structured interviews were conducted with various stakeholders active in the Swedish financial market, where the majority of the interviewees had good insight in, and knowledge of, the retail sector. Semi-structured interviews with open questions was chosen in order to obtain qualitative data (Blomkvist and

(32)

Hallin, 2015). In the last part of the project an analysis was performed based on the literature review conducted and findings from the interviews. The role of the analysis was to answer the research questions and derive recommendations for the Swedish financial market in order to promote green investments in the retail sector.

Figure 3: Research Process

5.2.1 Literature Review

The aim of our literature review was to find relevant theories and frameworks that would give us the opportunity to analyse our empirical findings. This was done in order to better understand the existing frameworks and identify possible variables and areas that these do not include, where our work could be seen as a complement. To find relevant literature, we mainly used KTH’s database Primo. However, Google Scholar, complementary Google searches, the webpage Swedish House of Finance as well as help from our commissioner and the help from our supervisors contributed to our literature review. Throughout the project, the goal of our literature review varied and can be described through the following three different stages:

To obtain a deeper understanding of the topic of the thesis, the first part of the literature review was focused on green investments, financial instruments and effective markets. This gave us a broader knowledge base and understanding of further topics to study, as well as helping us defining the research question and our sub-questions.

The second phase was during the data-gathering process, where the literature review included topics on Rational Choice Theory, Behavioural Economics and an initial review of subsidies, since these topics was a good complement of our knowledge gained in the first phase, as well as the topics were touched

(33)

upon during the interviews. Throughout the whole data-gathering process the literature review was conducted continuously to ensure that we had an adequate foundation to be able to cover topics mentioned during the interviews in our analysis.

A finalising literature study was done during the post-processing and analysis of our empirical data in order understand how our empirical findings relates to findings and results among other researchers. The finalising literature study included further development of the subsidy section and topics such as short- termism and investors preference towards sustainable investments. By this approach we were able to identify patterns within our findings and draw conclusions. The information of which the findings are based on is attributed to journals, business presses, articles and books.

5.2.2 Empirical Data Gathering

Semi-structured interviews were used in order to obtain empirical data. The empirical data, together with the literature review, helped us answer the research question. The process of gathering empirical data was divided in two phases, where we in the first phase defined the interview questions, and relevant interviewees were approached through e-mail. The second part included meeting the interviewees and conducting the interview. When the interviews had been conducted, the initiation of the analysis started, followed by discussion and conclusion.

Sample construction

Two different groups were defined in order to construct the sample, namely professionals working with financial instruments, professional economists and other professionals on sustainable finance. This was done in order to separate interviewees with specific financial instrumental knowledge from the ones with a deeper knowledge of economics and investments. It was deemed that the first group was important to our own knowledge of financial instruments, but also to find out what kind of instruments can be created and be available to the retail sector. The second group was seen as the most crucial group in order to help answer our research question. This is due to the insights and knowledge they bring about the market and how stakeholders can work in order to support green investments. This is also the group that has the most insights in how governmental support may or may not affect the market, which is valuable to us since it gives us the opportunity to derive recommendations of which path to choose to promote green.

(34)

Selection and approaching of interviewees

In order to get in contact with the interviewees, contacts from our commissioner were used since the commissioner has a vast network with the appropriate people. Other than contact information to potential candidates given to us by our commissioner we have searched newspaper articles, company websites as well as utilising our personal network in order to get in touch with professionals.

Given that the commissioner assisted with contact information we easily reached the more senior employees that were of interest in certain financial divisions.

Regarding the other interviewees interviewed the general process was to try to get in touch with the senior colleague that could either be interviewed or give us contact information to another person within the same area that we could potentially interview. The reason for trying to interview the seniors is due to that they often have better knowledge of the market and the instruments as well as they can draw parallels to historical events or own experiences, something that is harder to do for the most junior ones. When the proper candidate was identified the initial contact was always taken by email. The process proved to be rather effective, since the number of interview request sent out was 14 and 11 answered our email. However, not all accepted the interview request. The number of accepted interview request was 8 which implies an acceptance rate of approximately 57%.

The different roles of the interviewees provided us with a thorough understanding of the subject, as well as helped us with different potential approaches to the solution of our research question. In chronological order, the interviewees are listed below:

Figure 4: Overview Interviewees

(35)

Interview execution

The choice of conducting the interviews in person was made in order to strengthen our finding as it is easier to capture details and body language, as well as we could record the interviews with good quality. The only interview conducted over the phone was due to the time limit of our interviewee as well as the dis- tance to the particular office. The length of the interviews ranged from 29-50 minutes with an average duration of approximately 41 minutes.

In the appendix in section 9, one can find a rough outline of the interview questions. The questions were prepared prior to every meeting in order to tweak the questions to fit the professional area of the interviewee. Depending on the answer of the interviewee follow-up questions were asked when deemed appropriate and will not be presented in detail since they were case-specific. These follow-up questions were asked in the situations where we needed clarification of statements or when trying to get the interviewee to expand a thought or topic deemed relevant to our project. The interviews were semi-constructed in order to gain qualitative data to answer our research question. Since we had less knowledge than the interviewees in the area the semi-constructed interviews gave us the opportunity to shape the conversation (Blomqvist and Hallin, 2015).

This way of conducting interviews commensurate with the exploratory nature of the research question, and was particularly chosen to let the interviewees voice their opinions and understand what they think is important and how certain things are perceived in the industry.

Theory and findings from the interviews were compared in order to show alignments or discrepancies of our interviewees arguments with relevant theory. In the analysis these alignments and discrepancies are presented. In order to increase the reliability of our interviews we took precautions and ensured to keep an open mind and objective attitude (Cohen et al., 2013). Hence, we as researchers gave ourselves the opportunity to assess the problem with as little bias as possible. Further, our analysis of the interviews did not start until we had conducted several interviews as we did not want any early findings to impact interviews conducted later in the process. By using this approach, we ensured to keep an open and objective approach during the interviews, avoiding any attempts to confirm early interview findings with findings later on in the interview process (Cohen et al., 2013).

5.2.3 Data Procession and Analysing

In the beginning of each interview, we asked for permission to record, which was granted by all interviewees. When the interviews were done they were im- mediately transcribed, a time consuming moment but rather straightforward

(36)

since we had the permission from every single interviewee to record the conversation. This was done in order to not lose any information or create misleading citations. Further, when transcribing, noise and irrelevant topics that were discussed not contributing to any further question or insight were removed.

When all interviews had been conducted and the finalising of the transcribing part was done we summarised the interviews and removed any redundan- cies such as topics not really related to the thesis. To stay independent and make sure that we did not leave any important information out or misun- derstood it, both authors of this thesis individually summarised and analysed the transcribed interviews. To get an overview of the summary we structured our findings into topics and outlined important information and the interviewees thoughts where possible. The topics that we chose reflects the different categories of which this thesis treat, namely green investments, sustainability, behaviour and policies.

We decided not to label any quote of the interviewees, even though none of the interviewees explicitly asked to be anonymous. The reason for this is that our personal view of the interviewees is that they were reluctant to share their absolute thoughts, even though we encouraged them to do so in the beginning of each interview by ensuring that the answers are to be presented in an anonymous way. Hence, throughout this thesis interviewees are labelled as ”Interviewee A” to ensure anonymity. The role of the interviewees is outlined earlier in the Method section in order to give the reader a better understanding of the perspective of which the answer comes from. Most of our interviews were held in Swedish, however, during one of the interviews there was a switch to English due to that an interviewee that joined the interview cold not answer in Swedish (but the particular person understood Swedish). Hence, most of the quotes found in this thesis are translated by us, the authors, from Swedish to English.

5.3 Reliability and Validity

Conducting research in a proper way is very important. A good foundation to this is to maintain the reliability and validity in the research. Reliability can, in short, be described as authors performing research in the right way (Blomkvist and Hallin, 2015). The description of validity is to ensure that the research addresses the right thing (Collins and Hussey, 2014). High reliability together with high validity enhances the replicability of the work, which implies that coming researchers and authors can replicate our work and derive similar results (Collins and Hussey, 2014).

(37)

By splitting validity and reliability into sub-groups one can assure high reliability and validity (Trochim, 2007). The split of these and their implications are found below.

Internal validity

The first sub-group treats the casual relationship between variables and results and this group is referred to as internal validity. Problems with internal validity generally arise in qualitative studies, as opposed to a quantitative study (Collins and Hussey, 2014). This is due to that the result could be biased by the researchers due to own observations and interpretation on information received. To address this problem, triangulation of data and theory was used, which Heale and Forbes (2013) mean increase the internal validity. Triangu- lation was used since our empirical findings were compared with findings in contemporary literature to ensure internal validity. Further, by analysing all findings ourselves before comparing with each other as researchers adds another layer of triangulation to the thesis.

Construct validity

To what extent a test measures the initial intended subject is defined as construct validity. There is a risk that imperfections in the construct validity arise during semi-structured interviews since there is a possibility to let the interviewees depart from the initial question (Collins and Hussey, 2014). Hence we were very carefully and clear that our research approach had a red thread throughout the thesis, which works as a remedy for the potential problem with construct validity. The questions used in the semi-structured interviews were constructed to be as non-leading and objective as possible to further counteract any imperfections. To further strengthen the construct validity, we used probes during our interviews in order to ensure that the interviewee answered the question.

Also, as stated earlier, we applied data triangulation which further enhances the construct validity.

External validity

The definition of external validity is how applicable results are in general, more precise if the results are applicable to areas that are broader than the investi- gated area (Collins and Hussey, 2014). Since we chose to limit our study to only handle the Swedish market, it is obvious that the results obtained in this thesis will be somewhat constraint to that area. In order to make the results generally applicable we compare the results obtained with other areas of research, of which potential conclusions might be drawn in order to cover these topics. To keep in mind is that the approach of using interviews in order to gain empirical data will yield analytical generalisations rather than statistical generalisations