Can sustainable investments act as a bridge between the economy and the environment?

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Can sustainable investments act as a bridge between the economy and the

environment?

A qualitative study about sustainable investments

Kan hållbara investeringar fungera som en bro mellan ekonomin och klimatet?

En kvalitativ studie om hållbara investeringar Fanny Björkman Sjölund & Tina Fossheim

Environmental Science Bachelor’s Thesis 15 hp

ST 2021

Supervisor: Yahya Jani & Magnus Johansson

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Abstract

The following study presents the results from one focus group discussion and eight individual interviews investigating how sustainable investments impact climate change. The demand for sustainable investments is currently growing, but there is a lack of research conducted within the area. We therefore aim to fill an academic knowledge gap surrounding the understanding of sustainable investments. To achieve this, we to identified the concepts defining sustainable investment practices and simultaneously identified the predominant factors for investors when making them. To assess the practice characteristics, we compared it with traditional investments. The informants were investors and professionals with occupations connected to sustainable investments. Furthermore, the study has the theoretical frameworks of the ecological modernization theory and value-belief-norm theory for assessing and analyzing study results. The results and conclusion of the study were that there is no universal definition of sustainable investments, causing distrust and concerns regarding the practice. Therefore, definitive conclusion about what sustainable investments can achieve for the climate is challenging to assess. Informants' willingness to invest in sustainable investments was connected to their values and knowledge. Results show a knowledge gap between individual's understanding of investments climate impact due to lack of accessible information for some investors. Finally, regulations concerning sustainable investments came into force during the time of the study.

Keywords: sustainable investments, investments, investment choice, pro environmental behavior, climate change, climate impact.

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Sammanfattning

I uppsatsen presenterar vi resultaten från en fokusgrupp och åtta intervjuer där vi studerat hur hållbara investeringar påverkar klimatförändringarna. Efterfrågan på hållbara investeringar växer men för närvarande saknas det forskning inom området. Vi strävar därför efter att fylla ett akademiskt kunskapshål kring förståelsen om hållbara investeringar. För att uppnå det ville vi identifiera begreppen som definierar “hållbara investeringar” och hitta de avgörande faktorerna för investerare när de väljer att investera hållbart. För att bedöma hållbara investeringar jämförde vi dess egenskaper med traditionella investeringar. Informanterna var investerare och yrkesverksamma med yrken kopplade till hållbara investeringar, vidare bygger studien på teorierna om ekologisk modernisering och value-belief-norm theory. Resultaten och slutsatsen från studien visar att det inte finns någon universell definition av en hållbar investering, något som orsakar misstro och oro angående praxis. Det är därför svårt att dra en absolut slutsats om vad hållbara investeringar kan uppnå för klimatet. Informanternas vilja att investera i hållbara investeringar baserades på deras värderingar och kunskap. Det fanns även kunskapsluckor mellan individerna angående investeringarnas påverkan på klimatet på grund av brist på tillgänglig information för vissa investerare. Slutligen trädde regler om hållbara investeringar i kraft under studietiden.

Nyckelord: hållbara investeringar, investeringar, val av investering, miljövänligt beteende, klimatförändringar, klimatpåverkan.

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Definitions of Concepts

Sustainable investments - A investment with focus on the integration between financial return and money flowing into a sustainable development (Folqué et al. 2021).

Traditional investments - A investment without any ethical aspects when placing capital (Nofsinger & Varma, 2014).

Pro environmental behavior - Behaviors with a less negative impact on the climate or environment than the original behavior (Cordano et al., 2011).

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1. Introduction

The historic relationship between producing and consuming with little to no regard for long- term consequences has generated side effects in the form of accelerating climate change and environmental degradation (Ruddiman, 2014). The health of the earth's biotic system is highly dependent on its abiotic systems: which have been disrupted by the Anthropocene. Public and private arenas demand sustainability being incorporated within institutions to halt and mitigate climate change (Avery, 2012). However, creating goods and services impacts the planet and requires the right tool: financial capital. Thus, the introduction of sustainable investment by the finance sector in the effort to mitigate climate impacts (Folqué et al. 2021). Sustainable investments focus on integrating financial return and money flowing into a development:

“...which meets the needs of the present without compromising the ability of future generations to meet their own needs” (United Nations General Assembly, 1987, p. 43). Therefore, in this study, sustainable investments refer to those investments that aim to reduce negative environmental and climate impact.

Efforts and recommendations towards sustainable living usually include activities such as:

replacing fossil-fuel-driven cars with alternative fuels, avoiding the consumption of meat, and purchasing second-hand goods (Naturvårdsverket, 2021). However, these activities can lead to a lower climate footprint but are of low impact in relation to choosing sustainable investments.

According to Nordea (2018), placing one’s superannuation within a sustainable pension fund would reduce an individual's climate footprint by 2,200 tons of carbon dioxide (CO2) equivalents. Savings that are 27 times greater than the sum of car use, limited air travel, meat, and water consumption, altogether. On the other hand, previous studies (Yue et al. 2020) show that investment placement is not enough to mitigate impacts on climate change. Individuals need to establish an active interest within the investment placements to influence business sectors’ practices.

Therefore, the purpose of this study was to investigate individuals' investment choices through the framework of value-belief-norm theory (VBN), together with ecological modernization theory (EMT), to then assess sustainable investments’ impact on climate change. The study aims to shed light on environmental science integrated within economics and the finance sector.

The multidisciplinary perspective was applied when answering the research question; how can

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8 sustainable investments impact climate change? Furthermore, two sub-questions were integrated within the study: what are the core principles of sustainable investments? As well as the question: what factors attract individuals to make sustainable investments? Sustainable investments are rich in nomenclature and interpretation; therefore, to pinpoint individuals' understanding of the practice, the study aims to identify the characteristics of sustainable investments.

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2. Background

2.1. Identifying investment strategies

An investor is a person or entity who distributes capital into a commodity and thus obtains part- ownership (Krugman & Wells, 2015). Finance, in contrast to investment, is the act of obtaining financial capital from outside sources through borrowing, earnings, or investment (Byström, 2020; Teall, 2013). Both activities are vital for the success of an organization and share a common goal: to bring money into an organization, raise the market value of assets, and finally, obtain financial return (Byström, 2020). Financial capital is monetary and can be anything of value, such as assets, estate, money, or cryptocurrency.

The roles of an investor vary depending on the purpose and level of involvement within the entity (Byström, 2020; Krugman & Wells, 2015). A private person who invests money rather than an institution is usually referred to as a personal investor. On the other hand, a business angel alludes to an individual who provides capital to start-ups, small enterprises, or entrepreneurial individuals. Business angels usually make independent decisions regarding investments and become actively involved within the companies (Byström, 2020).

The level of involvement between an investor and an entity can be separated as active, passive, or pre-investor (Tresidder, u.å). An active investor, such as a business angel, is characterized by their high interest within finance and a high ability to influence firms (Sharpe, 2018). In contrast to active investors are pre-investors. Pre-investors have a minimal financial interest with little to no thought behind an investment strategy (Tresidder, u.å). On the other hand, passive investors are people with a personal interest in finance in relation to pre-investors but with limited impact on firms (Sharpe, 2018; Appel et al. 2016).

2.1.1. Bonds

A bond is a financial instrument with a fixed income representing a loan made by an investor to a borrower (Byström, 2020; Teall, 2018). The bondholder expects interest upon revenue and oftentimes receives occasional interest payments. Bonds are issued by various stakeholders to finance projects and are commonly accredited by governments or corporations. However, even private investors can provide bonds.

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10 2.1.2. Stocks

An alternative way to elevate financial growth is through purchasing stocks on the stock market (Byström, 2020; Teall, 2018). Buying a stock means the individual gains shares of ownership within an organization. The purchase is generally made through brokerage companies who act as a middle hand between the organization and the investor. The shareholder- the person who holds the stocks, collects profits, also known as a dividend, by the corporation (Krugman &

Wells, 2015). A shareholder can also sell the stocks of which value is highly dependent on market signals which could lower or increase the stock value.

2.1.3. Funds

An investment fund is the collection of financial assets owned by a group of people to gain a financial return (Chen, 2020). The collection of assets varies in character. However, anything of value within the fund is referred to as securities. For example, these securities can contain anything from cash and cash equivalents to stocks, bonds, and even art. The word portfolio is then used to describe the fund's content in its entirety (Elton & Gruber, 1997). Thereafter the money within the fund will usually get invested by a fund manager. The fund manager is responsible for buying securities, where investment placement could maximize the expected return and minimize any risk, the risk being a loss of asset value (Gregory, 2016; Höchstädter

& Scheck, 2015). Fund managers typically invest the capital in several different assets and stocks, making the portfolio diversified and lowering the risk if only investing in one asset.

2.2. Climate Change

The scientific consensus regarding the increase of CO² in the atmosphere indicates human- related inventions and activities as the source of emitter created during the industrial revolution and onwards (Wilby, 2017; Marshak, 2019). Consequently, the increase in the concentration of CO2 and other greenhouse gases (GHG) in the atmosphere has increased the earths’ global mean surface temperature (GMST). Since the beginning of the 20th century, the levels of CO2 have risen from 280 parts per million (PPM) to the current estimation of 418 PPM as illustrated in figure 1 (Areskoug, 2006; Buis, 2019; Wright & Boorse, 2014).

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Figure 1: Development of CO2 levels during the last three glacial cycles, from National Aeronautics and Space Administration (NASA, 2021).

Carbon dioxide,alongside other GHGs, absorbs infrared light which, simultaneously warms up the atmosphere. However, the additional emissions have caused an unprecedented rate of climate change (Wright & Boorse, 2014). Due to this development, The Intergovernmental Panel on Climate Change (IPCC, 2018) has been stressing the significance of keeping the average temperature on earth below 2.0 °C, but with the aim of reaching a level below 1.5 °C.

Keeping the GMST below 1.5 °C will mitigate risk levels in recurring natural disasters and environmental degradation (IPCC, 2018). Currently, the ramifications of climate change have increased struggles for both humans and animals to adapt and survive due to new challenges within their living conditions (IPCC, 2018).

2.3. Climate Align Investments

2.3.1. A very brief history

Sustainable investments were introduced in the market during the 1960s, most prominently as socially responsible investments (SRI) but gained popularity until the 1980s and 1990s

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12 (Sandberg, 2008). The purpose of investors was to reflect on social values before investing.

Investors then began to exclude stocks or entire industries from their portfolios based on ethical beliefs (Grossman & Sharpe, 1986). Therefore, this affected business sectors such as the tobacco and weapon industries (Sandberg, 2008). During the 1960s, concerns for the environment and climate change grew, giving way for sustainable investments to appear within the financial sector slowly. The interest for sustainable development has since then increased by the climate change imperative. It has even impacted different sectors and influenced investors to act in accordance with the principles of sustainable development (Lewis & Juravle, 2010).

2.3.2. Different set of practices

Sustainable investment practices vary in character yet share a common goal; to reduce overall environmental and climate impact (McVitty, 2020; Avery, 2012). To name a few, low-CO²-risk investments act as a label on both funds and stocks, focusing on levels of emissions a particular industry emits. The label is a measurement from Morningstar (2020), indicating a portfolio to contain less fossil-fuel emitting activities than traditional funds. Investments referred to as ESG (environmental, social, and governance) work in alignment with the six principles of responsible investments (PRI) by the United Nations Environment Program (UNEP, n.d.). ESG can sometimes be regarded as a sustainability label, which indicates how well investment performances implement sustainability regarding the environment, social ethics, and business practices.

Other practices such as impact investing have grown in popularity, where investment practice is defined as “investing with the intention to generate positive, measurable social and environmental impact alongside a financial return” (Global Impact Investing Network [GIIN], n.d.). Unlike the previously mentioned investment strategies, impact investments support any cause the investor choose, as long as it generates a positive impact (McVitty, 2020; Avery, 2012).

2.3.3. Market Signals

Natural capital and ecosystem services are inputs that businesses depend on, either direct in terms of business practices, or indirectly through the supply chain. According to the World Economic Forum (WEF, 2020) the relationship between natural capital and the outputs it

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13 creates generates $44 trillion of economic value. Thereby, consequences of nature loss expose businesses to suffer significant asset losses and get exposed to risks. Investment placement could therefore cause a multitude of implications in the financial market (McVitty, 2020; Gilje et al. 2016). Both an active interest and the act to selectively choose an investment based on sustainable principles signals the market demand for sustainable business practices. Hence why according to Mercereau et al. (2020), placing capital in firms with visions aligned with a sub 2

°C scenario could bring back the world economy on a 2 °C trajectory. Sustainable investments could thereby engage firms to adapt best practices. After all, demand causes the market to react, and for enterprises that have implemented sustainability have been increasing their market shares (WEF, 2020). With current trends suggesting it will continue to grow (Global Sustainable Investment Alliance [GSIA], 2018).

2.3.4. Sustainable Investments Versus Traditional Investments

Nofsinger and Varma (2014) studied the performance in sustainable funds during market crises compared to when the market was stable. They examined and analyzed the market between the years 2000 to 2011. The study showed a tendency for sustainable funds to perform better during market crises than traditional funds. On the other hand, when the market was stable, traditional funds performed better than the sustainable funds (Nofsinger & Varma, 2014). Lui (2020) discovered the same pattern was discovered in 2020 during the COVID-19 pandemic. When the pandemic spread worldwide, a market crisis occurred. Many funds' values dropped in a short time. However, many sustainable funds dropped less and recovered faster than many traditional funds resulting in outperformance in several sustainable funds during 2020 (Lui, 2020). According to WEP (2021), even the value of sustainable bond issuance grew an additional ~10% the same year. However, according to Jafri (2019), some investment strategies have room to frame the investments into different narratives. The author describes this loophole as alarming since it could result in negligence regarding environmental, social, or political problems. Such critical flaws could blindside investors and distrust sustainable investment practices (Noel et al., 2018).

2.4. EU Taxonomy

In March 2021, phase one of the European Union (EU) taxonomy climate delegated act came into force (Regulation 2020/852). According to the European Commission (2020), the taxonomy is a transparency tool for companies and investors. The regulation aims to get investors to elevate sustainable technologies and businesses in the European market to reach

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14 the European Green Deal targets and make Europe climate neutral by 2050 (European Commission, 2019).

The regulation is an effort aimed to elevate sustainability practices and create a common language for investors and entities providing financial services (European Commission (2020).

The regulation also includes disclosure obligations on companies and financial market participants. As a byproduct, companies aiming to be a part of sustainable funds or stock would also have to report how sustainable their products and services vis-á-vis the taxonomy guidelines Lucarelli (2020). According to the European Commission (2020), an estimated 40

% of listed companies' economic activities are covered in the act. These are companies that are responsible for almost 80% of direct GHG emissions in Europe. Phase one includes the first set of technical screening criteria to assess which activities contribute to climate change adaptation and mitigations, which will be implemented by the end of the year 2021. The last phase, phase two, will be introduced by the end of 2022 and covers additional financial activities causing significant environmental effects (EU Technical Expert Group on Sustainable Finance, 2020).

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3. Theoretical framework

3.1. Ecological Modernization

Ecological modernization theory (EMT) will be used to find the core principles for sustainable investments and discussed later. Joseph Hubert introduced EMT during the 1980s as a concept which later was implemented as a strategy for achieving sustainable development (Dauda, 2019). EMT advocates increased industrialization efficiency through economic growth.

According to the theory, consumption is not the problem, the ineffective industrialization is, hence problems within the system (Hannigan, 2014; Ewing, 2017). To support the idea of EMT, industrialized countries are often seen as paragons since these countries have the capital means to afford a change. The institutions EMT focuses on science and technology, markets and economic agents, national states, social movements, and ecological ideologies, whereas technology is highly emphasized (Connelly et al. 2012). According to EMT, technological innovations are regarded as the central part of achieving sustainable development, whereas the rest of the institutions should adapt to support the innovations. Pioneering science and novel technology require financial means; therefore, financial capital is a prerequisite for markets and economic agents to develop (Hannigan, 2014; Connelly et al. 2012). Stated approach calls for governments to enact policies, such as the EU taxonomy, also rectifying market failures when necessary.

Social movements following certain ecological ideologies are viewed as stakeholders creating a new demand (Hannigan, 2014; Connelly et al. 2012). The demand rises from individuals who express a higher awareness of environmental issues and are called: ecological enlightened. As climate change has sparked interest amongst several stakeholders, an entire community can be viewed as ecological enlightened and creates a social movement. As a result, several industries now face the challenge of meeting the demand to readjust goods and services to fit into a sustainable profile. However, according to EMT, meeting the demand deems only plausible with economic growth since the shift will need financial capital for investment (Dauda, 2019).

Thus, according to EMT, economic prosperity and sustainability are interlinked. However, according to Ewing (2017), EMT has been criticized for being highly case study reliant and the strong qualitative method preference. Ewing (2017) explains that the study preferences fail to separate hypothetical results from actual real-time outcomes. Further on, Ewing (2017) claims that EMT is derived from elitist pro-liberal and capitalistic ideas, which romanticize the solutions to ecological problems.

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16 As previously mentioned, sustainable investments vary in profile and purpose, but they all share one common goal: to be economically lucrative. Therefore, the correlations between EMT and sustainable investments are strong since the investment strategies share similar denominators to the characteristics of EMT (Ruddiman, 2014; Connelly et al. 2012).

3.2. Value-belief-norm theory

3.2.1. The VBN theory

The VBN theory will be used in this study to identify the predominant factors investors prioritize when choosing an investment. In studies focusing on pro-environmental behavior (PEB), the VBN theory has been used frequently (Batavia et al. 2020; Caplow, 2019; Cordano et al. 2011; De Groot & Steg, 2009; Gatersleben et al. 2019; Nilsson & Martinsson, 2012; Punzo et al. 2020; Whitley et al. 2018). The VBN theory was introduced in 1999 by Stern et al. (1999) and is an extension of the Norm Activation Model. The VBN theory aims to explain underlying reasons for explaining individuals' PEB (Steg et al. 2019). The focus in VBN is that an individual's values, beliefs, and both personal and social norms are the reason for an individual's behavior (Stern et al. 1999). The basic thesis in VBN is that the individual's behavior is connected to their personal values (Nilsson & Martinsson, 2012). The individual's values will be shown in the individual's ecological worldview. Where the individual's values reflect how much the individual cares about the environment or other humans. Likewise, another important factor in the VBN theory is the individual's knowledge and understanding of the consequential environmental outcomes generated from the behavior.

Depending on the values connected to a behavior, the individual will express different ecological worldviews (Stern et al. 1999). The individual's ecological worldview acts as a moral compass when exposed to various dilemmas. Stern et al. (1999) presented in their theory that there are three types of values connected to the individual's ecological worldview: self-interest, altruism towards other humans, and altruism towards the biosphere. These three values are a grouping of different ecological worldviews that describe the relationship between humans and the environment (Steg et al. 2019). These three types of values are more often referred to as egoistic values, altruistic values, and biospheric values (De Groot and Steg, 2008). The egoistic values connect to behaviors where an individual can get a direct benefit. In contrast to the altruistic or biospheric values, a person feels a moral obligation to adapt to a more PEB because

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17 it will benefit the environment. Van der Werf et al. (2013) and Kuo & Fu (2020) concluded in their studies that PEBs often are obligation-based, which means that the behavior often demands more effort from the individual than the non-PEB. Furthermore, this fact could preclude the individual from adapting to a PEB. However, since individuals perceive a moral obligation towards the environment, they still choose a PEB (Kuo & Fu, 2020).

The egoistic values are correlated negatively to an individual's ecological worldview in contrast to altruistic and biospheric values, which are positively correlated (Steg et al. 2019: 191). An individual's ecological worldview will affect the person's ability to predict problem awareness connected to the environment. Therefore, the ecological worldview will influence individuals to adapt to a more PEB if they notice a reduction in their climate impact. Obtaining a specific value or an ecological worldview, the individual must gain knowledge about the subject (Caplow, 2019). The VBN theory projects that without problem awareness and the obligated feeling of responsibility for the environment individuals will not adapt a PEB (Nilsson &

Martinsson, 2012; Steg et al., 2019).

Figure 2. A flowchart over the Value-belief-norm theory adapted from Steg et al. (2019).

The VBN theory has successfully explained low-cost PEB and intentions to willingly change behavior such as political behavior, environmental citizenship, and acceptance of environmental policies (Steg et al. 2019). However, VBN has not been as successful when used in studies regarding high costs activities, such as reducing an individual's car usage. De Groot and Steg (2008) presented how conflicts between the three types of values must be minimized for a person to behave more pro-environmentally.

3.2.2. Defining values, beliefs, norms and knowledge

Values have three main features within the definition: a specific vision for a desired or undesired end-state, context-based, and serves as guiding principles (Steg et al. 2019). First, values act as visions for how an individual desires an outcome. For example, an individual can value the

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18 environment highly and therefore does not want toxic chemicals to contaminate nature since it could elicit negative feelings. Secondly, a person's values are context-based, Values can vary depending on the situation and location, these can seem substantial at the beginning however are ephemeral. Thirdly, values act as a guide for individuals when making choices, for example, choosing to buy ecological products or not (Steg et al. 2019). Initially, values and beliefs are somewhat similar. However, values tend to be more stable over time, unlike beliefs. Beliefs are often developed from recent experiences and can therefore be changed more easily than values (Steg et al. 2019). Another difference is that values are often knowledge-based, and that does not necessarily impact beliefs as much. However, beliefs are viewed as a part of the foundation for values (Nilsson & Martinsson, 2012)

Norms on the other hand, can be expressed as both personal and social norms (Steg et al. 2019).

Personal norms are the rules and standards of individuals’ behaviors. Meanwhile, social norms are rules and standards about behaviors accepted by a group. Personal norms are often connected and based on personal morals or beliefs derived from feelings of obligation (Steg et al. 2019). Regarding social norms, there are two different types: injunctive norms and descriptive norms (Steg et al. 2019). According to Whitley et al. (2018) social norms are context-based and are therefore both location and social-context-dependent regarding PEB.

Knowledge acts as an enlightenment, awakening values and beliefs (Caplow, 2019). Alongside knowledge, the person must inhibit problem awareness concerning the environmental issue.

The awareness would ignite an individual's emotional needs to adapt more PEB. However, PEB requires the individual to understand how human behavior contributes to climate change or other environmental problems (Caplow, 2019; Steg et al. 2019). The type of understanding related to aforementioned is called problem awareness. Without comprehending the consequences from a behavior, the individual will not elicit the need to change behavior. To achieve the understanding of the problem awareness, the person needs to acquire the right knowledge about the issue (Caplow, 2019). With the right level of knowledge, the person creates personal values, beliefs, and norms.

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4. Previous studies

4.1. Investment choices

Previous research (Nilsson, 2008; Wins & Zwergel, 2016) concerning individuals' investment choices focused on social sustainable funds. However, the results showed that altruistic values were the primary reason for choosing socially sustainable funds. Although the perceived consumer effectiveness and trust within a fund also affected individuals’ willingness to invest (Wins & Zwergel, 2016). Yet, egoistic values as profit-oriented factors had a significant impact on the individuals’ when choosing funds (Nilsson, 2008). Nilsson (2008) implied that there were more than the profit-oriented factors that affected an individual. Individuals even compared their environmental and social concerns with the believed consequence from their investment prior to investing. However, without lucrative prospects, a person would not invest in a sustainable fund (Nilsson, 2008). The study done by Wins and Zwergel (2016) concluded the same result as Nilsson (2008), where they also observed the importance of asking the participants how they define what a sustainable fund is. In their study, Wins and Zwergel (2016) found that the definition of a sustainable fund varied depending on the individuals’ values connected to investments. The individuals who invested in social sustainable funds were more influenced by their altruistic values when choosing funds and defined them as comprising ecological, social, ethical, and economic issues. An opinion that was not shared at an equal extent, from the individuals who did not invest in social sustainable funds (Wins & Zwergel, 2016).

Figure 3. An upside-down triangle illustrating the level of influence of active, passive and pre-investor have on business sectors (Björkman Sjölund & Fossheim, 2021).

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20 An individual's investment behavior is highly influenced by the person's financial interest. As previously mentioned, the level of investment involvement can be separated as active, passive, or pre-investor. How engaged an investor is, is fundamental when trying to influence business sectors, as illustrated in figure 3 (Yue et al. 2020). An active involvement plays a significant monitoring role in pressuring businesses to act in accordance with their practice claims.

According to Fisch et al. (2019) passive investors lack incentives to engage meaningfully with their portfolio companies. However, the authors claim that the existing option for both active and passive investors is a meaningful tool to influence decision-makers. Even Appel et al.

(2016) recognized passive investors influential roles, stating passive ownership can be correlated with a firm's long-term performance. Even pre-investors could impact stakeholders, although a pre-investors role is minuscule in comparison to active or passive investors.

4.2. Pro-environmental behavior

Regarding an individual's climate impact, different activities and behaviors are considered to hold a different degree of unwanted climate impact. PEB is defined as behaviors with a less negative impact on climate change (Cordano et al., 2011). These behaviors are usually associated with riding a bicycle instead of driving a car, recycling waste, choosing ecological products over similar substitutes. Behaviors linked to activities that would decrease one's climate impact (Gatersleben et al. 2019). The factors regarding what could impact a person to adapt a PEB are numerous. One of the most common theories to explain PEBs is VBN theory (VBN) (Batavia et al. 2020; Caplow, 2019; Cordano et al. 2011; De Groot & Steg, 2009;

Gatersleben et al. 2019; Nilsson & Martinsson, 2012; Punzo et al. 2020; Whitley et al. 2018).

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5. Method

5.1. Method focus group

5.1.1. Focus group selection

When performing qualitative studies, different methods can be used to select the informants (Eriksson Barajas et al. 2013). One of the inclusion requirements for the focus group was participants acting as a form of investors. Another requirement was to include informants of which had not made any sustainable investments. These selection criterions were established in order to compare any differences in values between informants who have made sustainable investments with those who had not.

To find participants, we asked individuals from our personal networks who had previously expressed involvement within different types of investments. A strategic and convenient selection of the informants was conducted following Eriksson Barajas et al. (2013). According to the authors, a strategic selection is when the researchers have specific requirements to choose informants. A strategic selection was implemented to find investors who had not made any sustainable investments, to compare the individual's investment motives. Due to the COVID- 19 pandemic, the convenience selection was implemented since the pandemic more difficult to reach out to individuals unfamiliar to the researchers. Therefore, we opted for the convenient choice to help facilitate the selection. All informants were Swedish and between the ages of 26 to 32 years old.

5.1.2. Focus group procedure

Due to the COVID-19 pandemic, the focus group was held remotely via the online meeting tool Zoom. As per the suggestions by Bryman (2018), an information email was sent out ahead of time to all participants. The email contained the date of time as well as the meetings Zoom- hyperlink. Additionally, the email included rules of conduct (see appendix 1). The focus group was held on the eighth of April 2021. A dictaphone was used to record what was said during the meeting, followed by the recommendation from Eriksson Barajas et al. (2013). The recordings from the focus group were later transcribed.

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22 Once the informants had joined the meeting, a brief description was given about the purpose behind the focus group. The participants were informed that the topic would be about investments and sustainable investments. No additional information was presented in case it would affect an informant’s answers. The rules of conduct were once again established and confirmed by all informants.

The focus group lasted for approximately one hour. Before the meeting, a deductive interview guide had been prepared with the purpose of obtaining an understanding of why the informants had not yet made any sustainable investments. The questions for the focus group included: why the informants started with investments, what they perceived as most important when it comes to investing, and other questions which would point out the type of values they emphasized when investing. The interview guide was of a semi-structured character alongside a hermeneutic method, following Bryman (2018). Bryman (2018) describes a semi-structured method to research a topic but still has room for the supplementary questions, which creates a flexibility within the method. Following it also lets the informant to interpret what they perceive as important prevailing the subject. The supplementary questions were used to gather additional information, hence why the study method was suitable for the study.

Furthermore, Eriksson Barajas et al. (2013) highlight the importance of a researcher engaging and encouraging the informant to express their beliefs, experiences, values, and attitudes when conducting an interview. Also, the significance to bear in mind that a researcher must interpret the informant's answers within interviews. Otherwise, the material could become incomplete.

5.2. Method Interviews

5.2.1. Interview selection

Bryman (2018) describes that the selection of informants is crucial for the result when performing interviews. The first inclusion requirement was for the informant to have made a sustainable investment. The second requirement was to include informants with work experience in any fashion regarding sustainable investments, ergo to understand how sustainable investments are being implemented more professionally vis-à-vis the private investors.

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23 Two methods were applied when gathering informants for the interviews. When searching for private investors, we asked individuals from our circles of acquaintances. The individuals with professional backgrounds connected to sustainable investment were contacted through the online platform LinkedIn (u.å). Via LinkedIn, we published a post asking for informants in a group regarding sustainable investments, individuals willing to participate, then approached us after reading the post. According to Eriksson Barajas et al. (2013) this led to a strategic and convenient selection when choosing interview participants. Regarding the informants, eight were selected for the interviews between the ages 23 to 60 years old, with the nationalities:

British, Danish, French, Norwegian, and Swedish – four as private investors investing in funds and shares. The remaining four were those working with investments or other professions related to sustainable investments.

5.2.2. Interview procedure

Once again, the online meeting tool Zoom was used when performing the interviews. The interviews were performed in April and May of 2021, during the spread of COVID-19.

Whereby the interviews were not conducted in person. Bryman (2018) suggests that an informational email should be sent to the informants before the interview (see appendix 2).

Therefore, some days before the interviews were held, an informational email was sent to the informants.

Eriksson Barajas et al. (2013) suggest that the researcher should record the interview to facilitate the interview transcription. Therefore, a dictaphone was used to record the conversations. The recordings from the interviews were later used to transcribe the data from the interviews. The hosted languages during the interviews were Swedish or English, depending on the native language of the informants.

The interviews lasted between 25 to 40 minutes and began with an introduction of ourselves and the topic of discussion. Initially, only a brief explanation about the study was given, to avoid influencing the informant answers. Questions were prepared for the informants ahead of time and were designed following Bryman (2018). The questions where of a semi-structured character with a deductive method. Bryman (2018) describes that a semi-structured interview allows informants to mention topics that might be important to the study, which had not been anticipated in advance. When studying a relative unresearched area, giving informants the

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24 chance to influence the subareas allows for a broader understanding of a topic. Eriksson Barajas et al. (2013) also describe interview as a method where the researcher guides the informant to talk about specific topics such as objects, issues, or events. Through interviews, informants are given a chance to voice a more detailed description of their thoughts about a topic. The freedom is allowed for a better way of understanding the factors which affected an individual making an investment. It also helped obtain knowledge concerning relevant sub-areas we did not predict prior to the interviews.

Two separate interview guides were prepared for the interviews. One for the informants who were private investors, and one for the informants whose professions were related to sustainable investments. The interview guide intended for the private investors contained themes such as why they chose to invest in sustainable investments and what industries they had invested in.

Some of the questions were designed to capture and perceive the informant’s knowledge and values about sustainable investments. Other questions aimed to capture their perceived obligation towards the environment and knowledge about investments' climate impact. The questions were designed to clarify which values were predominant for the informants when choosing an investment.

The interview guide for the informants with professions connected to sustainable investments was more emphasized what defines sustainable investments and how the investment niche works. The questions contained subjects such as how the climate impact of sustainable investments is analyzed and the process behind sustainable investments labels. Additional questions followed their views on the connection between sustainable investments and the demand for a sustainable future.

Eriksson Barajas et al. (2013) explain that it is essential for the researcher to engage and encourage the informant to express their beliefs, experiences, values, and attitudes when performing the interview. Otherwise, the answers told by the informant might be incomplete.

When conducting interviews, researchers also must interpret participants' responses (Eriksson Barajas et al. 2013). Some of the informants seemed very passionate about the topic of the interview, others not as much. Therefore, some of the informants were asked more supplementary questions than others to avoid any incomplete answers. Additionally, Eriksson Barajas et al. (2013) explains that an interviewer is responsible for encouraging and engaging an informant to express their beliefs, experiences, values, and attitudes. After performing the

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25 eight interviews, the informants expressed no additional information, and we concluded that empirical saturation was accomplished.

5.3. Analysis method

The analyzed data was performed on the transcripted data from the focus group and interview.

The transcript material from the interviews was then coded and themed. When the coding and theming was performed, a deductive method according to the description by Hjerm et al. (2014) was applied. The deductive method was with the study’s theoretical framework; EMT and VBN theory.

Figure 4. The different themes that were used during for different theories.

One premise that differentiates a qualitative study from a quantitative one is that the researcher must interpret the informant's answers (Bryman, 2018). When interpreting the answers, the researcher might interpret the given answer from the informant differently than how the informant perceives it.

The analysis of the transcripted data was performed with two different focus areas: one surrounding EMT and the other with a focus on VBN theory. For the different theories, different themes were used based on the two theories. Hence, it was suitable to use predetermined themes based on principles within the theories. Another reason for performing two separate analyses on the transcript material was to avoid mistakes and raise the reliability and validity of the analysis. According to Bryman (2018) is important when coding and theming.

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5.4. Research ethics and consent

Before the study was conducted, an application for evaluating the ethical concerns regarding the study was sent to The Council of Ethics at The Faculty of Society and Culture, at Malmö University. The Council of Ethics approved the study and claimed that it did not consist of any ethical sensitive traits or information.

Ahead of time, the informants were sent an email with a letter of consent (view appendix 2) due to GDPR-regulations regarding the storage of private information. Since the meetings were recorded and stored, the letter of consent could be necessary when handling recorded data. The informants were informed that all participation was voluntary and could choose to withdraw at any time. Furthermore, all informants will be presented anonymously, and the recorded material will be deleted once the study is completed and published.

5.5. Validity and Reliability

When performing a study, it is vital that the method matches the study's purpose and is of high quality (Eriksson Barajas et al. 2013). Conducting one focus group and then separate interviews allowed to obtain more detailed and profound information from the informants. Because of previous studies regarding values connected to traditional- and social sustainable investing, the researcher deemed the focus group suitable to reach a deeper understanding of why the informants had yet to make any sustainable investments. The results could then be compared to previous research, which would raise the reliability of the study.

Eriksson Barajas et al. (2013) describe focus groups as an effective method to gather information about feelings, values, attitudes, emotions, and opinions. The authors also pointed out how the research quality can increase by using focus groups due to the interaction between informants. The exchanges help the informants balance each other's opinions and build upon said answers. However, that causes radical beliefs not to get expressed as liberally. Contrariwise to individual interviews where potential radical opinions could have been uttered without concerns for social sanctions. (Eriksson Barajas et al. 2013).

Regarding the focus group and interviews not being performed in person, studies have shown that there are usually no differences in the results when conducting telephone interviews compared to interviews in person (Zhang et al. 2017). Therefore, the focus group and interview

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27 results should not have been affected using Zoom. However, Bryman (2018) expressed concerns regarding the researcher's risks of missing out on the informants’ reactions regarding the questions and the informants’ gestures when answering via telephone interviews. These reactions and gestures can play an important role when interpreting an informant's answers. The informants were therefore asked to activate their cameras during the meeting. The person's facial expressions, upper body language, and hand gestures were then visible and minimized any risk for misinterpreting the answers.

To ensure high reliability concerning the interview guides, Bryman's (2018) interview guide regarding semi-structured questionnaires was followed. The choice of selection could also affect the reliability of the study. Bryman (2018) describes how the result of an interview study is heavily dependent on the chosen informants. Therefore, the study results are significantly reliant on the participants.

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6. Results and analysis

Informants from the focus group are referred to as informant A-C. The informants from the interviews will be referred to as informant 1-8.

6.1. What is a sustainable investment?

6.1.1. Focus Group

6.1.1.1. Defining a sustainable investment

When asked to describe what a sustainable investment entails, the informants' answers differed greatly. Most informants had no definitive answer and found it difficult to pinpoint a description of the practice. Informant A, a passive personal investor, had associated sustainable investments with labels and gradings. “I think it might be that you might have some big profile with some kind of template that is based on what is considered sustainable … like a label” (Informant A).

Even though sustainable investment strategies are not necessarily labels, informant A investors associated the practice with it. We interpret that as an indicator of how sustainable investment marketing strategies have worked to bring the practice to light.

Informant B, a passive personal investor, admitted to not having heard of sustainable investments before but added. “When you hear the phrase sustainability, it is always associated with the environment in some way” (Informant B). Since informant B was a passive investor and therefore not highly engaged in investment activities, it could be why the person had not come across with the practice before. We also see this as an indicator that some personal investors do not get in contact with the sustainable investment strategies and fail to fulfill what EMT means would lead to a social movement (Hannigan, 2014; Connelly et al. 2012). Since according to EMT, each individual who helps bring sustainably aligned demand acts are

“ecologically enlightened”. Therefore, ecologically enlightened citizens would create a social movement that allows the transition market to meet sustainable demand (WEF, 2020).

Even though informant C, an active personal investor, was also unsure of what a sustainable investment entails, the informant mentioned the UN's global sustainability goals. Informant C described it as. “I think it may have something to do with the UN's global sustainable goals”

(Informant C). As previously mentioned, there are sustainable investment strategies that work

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29 in alignment with principles announced by UNEP (UNEP, n.d.). Since informant C was an active investor, the informant's interest can be why the individual seems more insightful and aware of the sustainable goals than informants A and B (Sharpe, 2018).

6.1.1.2. Investment placement

None of the focus group informants had made any sustainable investments. However, informant B expressed how the person once had invested in a fund that seemed sustainable because of how the informant interpreted the fund name. “I invested in a fund called natural recourses, which to me sounded sustainable. I thought it was about gold and silver or similar resources.

But then it turned out that it had fossil fuels”. (Informant B). The stated quote indicates how informant B associates the word natural as sustainable. Since the definition and keywords of sustainable investments are vast, it can be difficult for an individual to identify what keywords hold the correct meaning (McVitty, 2020; Avery, 2012). UNEP (n.d.) striving to create a common language for investors and financial entities to agree on what sustainability entails would therefore be helpful for investors to avoid paradoxical situations similar to what informant B experienced.

6.1.1.3. Trust and transparency

When discussing if the informants trust the claims behind sustainable investments, the informants doubted how impactful sustainable investment could be. Informant C stated the following.

I got told by my colleague from the ESG division that ESG is a label that overused because all funds get it as long as they do not invest in maybe the weapon industry. Then it becomes difficult to distinguish which are actually sustainable and have a focus that is sustainable and which are not sustainable. (Informant C, 2021)

Even informant B expressed a vigilant attitude towards sustainability due to the overwhelming interpretations of the phrase.

Sustainability feels quite diffuse nowadays. You cannot really know what it stands for and you do not know what sustainable means. Sometimes it feels like something is going to sound good.

(Informant B, 2021)

The problem informants B and C are shedding light on is what the EU taxonomy aims to clarify (European Commission (2020). Since the EU taxonomy demands companies and financial

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30 institutions to disclose what makes their business practices sustainable. According to EMT, governmental policies should be applied to ensure market efficiency (Hannigan, 2014;

Connelly et al. 2012). Following EMT, the taxonomy could be a governmental effort to direct the market onto a 2 °C trajectory (Mercereau et al. 2020).

6.1.1. Interviews

6.1.2.1. Defining a sustainable investment

The informants were asked to describe what a sustainable investment entails, which resulted in significantly different answers, much like what was implied in Wins and Zwergel (2016). All the informants struggled to explain what sustainability or sustainable investments means, even the informants who worked closely with sustainable investments and the ones who had invested within them. Informant 5, a pre-investor who's worked closely with finance, explained the perceived complexity.

There is no universal agreement on what any of these things actually mean. You will find people using the term sustainable investment, sustainability, and a whole lot of other terms like circularity and materiality. They mean different things to different people. And particularly with subjects concerning greenwashing, people will take the word sustainable and use it to suit their business.

Plus, it gets more complicated, you cannot separate the E [environment] S, [social] and the G [governance]. You got to look at them all together. (Informant 5, 2021)

Using the letters E, S and G to describe sustainable investment, informant 5 had connected it with the practice of ESG investments (UNEP, n.d.). Informant 5 mentioned the use of

sustainability for greenwashing. As WEF (2020) and GDIS (2018) have reported, enterprises that have implemented sustainability have been increasing their market shares and observing trends suggesting it will continue to grow. Using phrases to imply sustainable practices could be a firm's reaction to increasing market shares. The trend could also be a market reaction to what EMT means: a social movement from ecological enlightened individuals not to lose consumers (Hannigan, 2014; Connelly et al. 2012).

Informant 3, who was a business angel, described it as. “I associate it with finance people who are trying to make good investments in green spaces (Informant 3). Another person who associated sustainable investments with the environment was informant 6, a passive personal

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31 investor. “I think and believe that it is something that is sustainable at all levels. Both socially and environmentally, but it is very difficult to explain” (Informant 6). However, informant 7 mentioned the UN's global sustainability goals. Informant 7, an active personal investor who professionally designed and manage a sustainable investment niche, 7 noted that.

Sustainable goods and services which bring a more positive factor in a measurement, those are activities or investments and certain types of activities that do something good and therefore you want to place your investments towards those companies. That is more in line with the UN sustainable development goals and uses those for investors to say what they want to invest in.

(Informant 7, 2021)

Informant 7 did mention positive factors which could be directly linked to the definition of impact investments, an investment strategy aimed to have a positive social and environmental impact (McVitty, 2020). The most descriptive answer came from informant 8, who worked with sustainable investment analysis.

An investment object that has control over its sustainability risks and has plans to address the risks have plans to address those risks to follow up on the sustainability framework they have.

The ones who are most sustainable are the ones who have already addressed the risks and done something about them. (Informant 8, 2021)

To summarize, the informants with an active interest or with professions closely related to sustainable investments seemed to understand better what the investments could be described as. The individuals’ definitions and associations with sustainable investments also seem to have been affected by different definitions from sustainable investment strategies.

6.1.2.2. Investment Placement

Informants 1-5,7, and 8 had made sustainable investments. These informants can therefore be viewed as ecologically enlightened individuals in accordance with EMT. As Hannigan (2014), individuals showing an active demand are creating a social movement. Some investment placements were within energy sources such as wind, solar, and hydropower, which also aligns with EMT since the theory advocates technological innovations as the prospect to attain sustainability (Hannigan, 2014; Connelly et al. 2012). Both informant 1 and informant 2 were passive investors. However, neither one knew the climate impact change the investment placement had. Yet still trusted their fund managers and investment banks as informant 2 mentioned. “I have reviewed the contents of the fund portfolio at some point and decided that

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32 it sounds legit, so it had to be good” (Informant 2). Informant 1 had instead read an article about investment choices. “I read an article about investment choices and felt that I trusted what was written in there” (Informant 1). Informant 5, on the other hand, whose investment activities were like the characterizations of a pre-investor, had switched to a sustainable investment fund, the only informant to do so.

If you are talking about me and my sustainable pension funds for example, I cannot make the individual decision about the investments of the pension company. But the pension company does.

I may be passively investing in the pension company in ESG investments, but they are still active in choosing where to put their money. (Informant 5, 2021)

We also interpret the answer from informant 5 as highly aware of how pension fund preferences can impact the market. Informant 8 was an active investor who worked closely with sustainable investments.

I have invested in a small Nordic company which is fossil-free. I have also invested in a Nordic low risk bond. Both funds have a Belgian sustainable label. And I helped the companies to get there, so I know what they mean. (Informant 8, 2021)

Informant 4 did not mention a particular sustainable investment strategy but did associate the clean-tech industry with sustainability, similar to EMT (Ewing, 2017). Also, instead of following already existing sustainable investment labels, informant 4 made an own estimation on what could be sustainable before investing. Informant 4 also viewed business practices transitioning to sustainability as a continuous process.

There is one Danish company that deals with container vessels, which is one of the largest in the world and pollutes a lot. They have announced that in 10 years they will cut their emissions by 50%. This is a much more sustainable investment for me in such a way where I can be involved in supporting that journey and through my capital can influence there. (Informant 4, 2021)

Informant 4 mentioned supporting business practices that were transitioning to best business practices to reduce emissions. We view this as a prime example of a business adapting to market signals which is what WEF (2020) meant could lead to increased market shares. Informants 4s initiative to invest within it can confirm the development.

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33 Informant 3 was the only one mentioning investments in entities outside of energy and new tech.

I invest in businesses that employ women to get them out on the working market. It is not an environmental factor, but if we are going to solve future problems, we will have to engage all talent. And that is one of the problems that are not being utilized right now, which is to hire women. I also invest in a company that does makeup but is making it sustainable, environmentally friendly, and socially responsible. (Informant 3, 2021)

The investors had a clear understanding of what they wanted to support, which could also be indicators of what they believe to be sustainable. However, EMT does not emphasize social justice as a prime principle to achieving sustainability. Hence why informant 3s interpretation of sustainability did not align with EMT.

6.1.3. Trust and transparency

There was a shared skeptical view surrounding the contents of sustainable entities. Informant 4 believed the practice lack substance and is merely a feel-good label for personal investors.

It is used very often without having any substance. You just say away that you make a sustainable investment to make you feel sustainable. But one does not think about how it invests sustainably and how the investment should really benefit the sustainable... People invest sustainably because of how it makes them feel. (Informant 4, 2021)

The stated skepticism could be explained by informant 7s explanation of what a sustainable fund could include.

Funds can have loopholes and state that 50% of the portfolio must be within green companies, but in some portfolios, you can find companies that include nuclear companies. There is also one that has a terrible governance firm, it is a horrible firm and has a horrible government score, but they are in a sustainable fund because only 50% of companies must be “sustainable” the rest can be whatever else. So, you see a label, check their definition and not be sure of what you get. You can get some really bad companies depending on how they define it.” (Informant 7, 2021) The unclear definitions and sustainability labels have caused many of the informants to question the validity of sustainability. Without clear definitions or frameworks, businesses have more freedom to interpret sustainability as it seems to fit, as informant 7 explained, which was one

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34 of the concerns addressed by Jafri (2019). Informants 3,5, and 8 believed that transparency issues were the fundamental problem, as informant 3 explained.

What should define what is green or sustainable is the level of transparency and the climate impact that it is currently making. What is happening in the market is that we use different psychological definitions of what is green or not. And I think that that is an unfortunate way to look at assets. If the market is to function efficiently that is a question of degree, not binary functions. And for the market, it needs transparency. (Informant 3, 2021)

Informants 5 and 8 mentioned the new EU taxonomy. Informant 5 seemed skeptical about the impact the regulation will have, saying “If you look at the EU taxonomy it is rubbish. It is easy for a company to comply with the taxonomy. Also, this nearly makes any difference at all”

(Informant 5). Informant 8 did not seem to share the same view. “With the new regulations the pretense will be over. There has been a lot of greenwashing, but then it will be: if you say it, prove it” (Informant 8). If the effort is enough can be interpreted differently, both informants 5 and 8 do work closer to sustainable investments, whereas one of them will be significantly more affected by it. Thereby we were not surprised to see different thoughts and opinions regarding the taxonomy. As for EMT, according to the theory, governmental regulations should only be introduced when the market is sending the wrong signals. Some informants believed that finance played a considerable role in sustainability. Informant 8 touches briefly on the relationship between finance and governmental regulations.

The European Commission has realized that there is only one way, you have to force finance to become sustainable, hence why we have the European green deal. If you make that machinery work in finance, then everything will follow. There is no company in the world that has no relation to finance or to banks. (Informant 8, 2021)

Informant 8 believes finances' role is grand, and by forcing a sector to comply with specific regulations, we interpret informant 8s believes as stronger than the once's implied by EMT (Ruddiman, 2014; Connelly et al. 2012). However, the theory fails to suggest when it is suitable for a government to interfere with market signals (Ewing, 2017). As for now, the taxonomies could therefore nudge the market into a sustainable economy since it forces more transparency within financial entities (European Commission, 2019; Connelly et al. 2012).

Can sustainable investments act as a bridge between the economy and the environment?