Sustainable Investments

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IN

DEGREE PROJECT INDUSTRIAL ENGINEERING AND MANAGEMENT,

SECOND CYCLE, 30 CREDITS STOCKHOLM SWEDEN 2020,

Sustainable Investments

Sustainability reporting from the institutional investors’ point of view

SOFIA BLOMSTRÖM SOFIE BOKFORS

KTH ROYAL INSTITUTE OF TECHNOLOGY

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Hållbara investeringar

Hållbarhetsrapportering från institutionella investerares perspektiv

av

Sofia Blomström Sofie Bokfors

Examensarbete TRITA-ITM-EX 2020:297 KTH Industriell teknik och management

Industriell ekonomi och organisation SE-100 44 STOCKHOLM

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Sustainable investments

Sustainability reporting from the institutional investors’ point of view

by

Sofia Blomström Sofie Bokfors

Master of Science Thesis TRITA-ITM-EX 2020:297 KTH Industrial Engineering and Management

Industrial Management SE-100 44 STOCKHOLM

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Examensarbete TRITA-ITM-EX 2020:297

Hållbara investeringar

Hållbarhetsrapportering från institutionella investerares perspektiv

Sofia Blomström Sofie Bokfors

Godkänt

2020-06-09

Examinator

Niklas Arvidsson

Handledare

Ermal Hetemi

Uppdragsgivare

Storebrand ASA

Kontaktperson

Anna Jönsson

Sammanfattning

I detta examensarbete undersöks vilken typ av ESG-information som institutionella investerare eftersöker när de ska genomföra och övervaka investeringsbeslut, samt hur möjligheterna ser ut för denna information att kunna presenteras i hållbarhetsrapporter.

Som underlag genomförs tolv stycken semi-strukturerade intervjuer med svenska statliga institutionella fondinnehavare inom kategorin regioner och kommuner. Vidare genomfördes fem intervjuer med sex stycken anställda på ett stort Svenskt-Norskt fondbolag. Resultaten visar att den grundläggande efterfrågan av ESG information styrs av det innehåll som investerarens organisations finansiella policy kräver, exempelvis att fondbolaget signerat PRI eller följer ramverk såsom GRI. Vidare så eftersträvas

hållbarhetsmotiveringar i kvalitativ form, exempelvis kring fondens hållbarhetsstrategi, företagsinkludering samt motiveringar kring fondens faktiska hållbarhetspåverkan i portföljbolagen. Utöver dessa efterfrågas även motivering av potentiella framtida företagsexkluderingar. Denna önskan är dock svår att tillgodose då denna potentiellt skulle kunna skapa osämja mellan fondbolag och portföljbolag. En sådan motivering skulle även kunna bidra till marknadsoroligheter för det aktuella bolaget, vilket kan försämra värdet på fondinnehavet. Slutligen efterfrågas även kvantitativ data,

exempelvis koldioxidutsläpp för fondportföljen. Denna kan dock inte alltid tillgodoses i rapporten då nog lång tillbakagången klimatdata saknas. En nödvändighet för att hållbarhetsrapporterna ska nyttjas ordentligt av investerarna är vidare att data presenteras liknande mellan fonder, så att en jämförelse mellan fondalternativ

underlättas. Investerarna poängterar slutligen att stor del av den ESG-information de eftersträvar bara är användbar om alla fonder rapporterar på liknande sätt, samt att ESG-informationen först blir riktigt användbar då en samstämmig definition av hållbarhet införs.

Nyckelord: Hållbarhetsrapportering, icke-finansiell rapportering, ESG, institutionella investerare, finanspolicy

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Master of Science Thesis TRITA-ITM-EX 2020:297

Sustainable investments

Sustainability reporting from the institutional investors’ point of view

Sofia Blomström Sofie Bokfors

Approved

2020-06-09

Examiner

Niklas Arvidsson

Supervisor

Ermal Hetemi

Commissioner

Storebrand ASA

Contact person

Anna Jönsson

Abstract

This thesis examines the type of Environmental, Social, and Governance (ESG) information that institutional investors seek when making and monitoring investment decisions, as well as the possibilities for this information to be presented in sustainability reports. As a basis, twelve semi-structured interviews were conducted with Swedish state institutional fund holders in the category regions and municipalities. Furthermore, five interviews were conducted with six employees at a large Swedish-Norwegian fund company. The results show that the basic demand for ESG information is governed by the content that the investor's organization's financial policy requires, for example, that the fund company has signed the UN Principles for Responsible Investments (PRI) or follows frameworks such as the Global Reporting Initiative (GRI). Furthermore,

sustainability motivations are sought in qualitative form, for example about the fund's sustainability strategy, corporate inclusion and justifications about the fund's actual sustainability impact in the portfolio companies. In addition, motivations for potential future business exclusions is also desired. However, this wish is difficult to cater for as it could potentially create discontent between fund companies and portfolio companies.

Such a justification could also contribute to market disorders for the company in

question, which could degrade the value of the fund holding. Quantitative data are also requested, such as carbon dioxide emissions for the fund portfolio. However, this cannot always be met in the report as reported data from companies are missing.

Furthermore, a necessity for the sustainability reports to be used properly by the investors is that data is presented similarly between funds, so that comparisons between funds are facilitated. Finally, investors point out that much of the ESG information they seek is only useful if all funds report in a similar format, and that the ESG information only becomes truly valuable after a unanimous definition of

sustainability is introduced.

Keywords: Sustainability reporting, non-financial reporting, ESG, institutional investors, financial policy

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possible. First of all we would like to thank the CEO of SPP Funds, Åsa Wallenberg, for believing in us and for giving us the opportunity to write at the company. We would also like to thank our supervisor Anna Jönsson for taking us under her wings, teaching us about the company and putting us in contact with institutional investors and employees at Storebrand ASA. Furthermore, we would like to show our gratitude towards our supervisor at KTH Royal Institute of Technology, Ermal Hetemi, for all the feedback and guidance throughout this process. In addition, we would like to thank all the professors and peers in our seminar group for providing valuable insights and oppositions. Finally, we would like to show our deepest gratitude to all 20 interviewees for contributing to this research and for sharing their knowledge and experiences with us.

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1. Introduction

In this section, the introduction of the thesis is presented. Initially, the area of sustainable development and the importance of sustainable financial resource allocation is briefly discussed. This is followed by an explicit problem description and finalized with a purpose and the thesis two research questions. Finally, the expected contribution of the thesis is presented.

1.1 Problem Background

The world is changing. There is evidence in a vast amount of research that the Earth’s temperature is rising as a consequence of human activity (Fitzroy & Papyrakis, 2010). The environmental changes and the severe damage that this trend could cause have gotten increased attention over the last decade. The worrying trends have given impetus to a tectonic shift towards renewable energy

sources, electrification, and recyclable materials – a shift that requires projects that demand extensive and expensive processes (Arutyunov et al., 2017). Sustainable development, a term defined as

“development that meets the needs of the present without compromising the ability for future generations to meet their needs” (World Commission on Environment and Development, 1987), is one of the movements that this shift has begotten.

However, there are several issues beyond the top-of-mind climate change that need to be

emphasized worldwide to ensure sustainable development on Earth. The highly impactful Agenda 2030 for sustainable development includes 17 multifarious goals that aim to highlight and target issues that ought to be prioritized globally (Walker et al., 2019). These are referred to as the Sustainable Development Goals (SDGs). The aim of the SDGs encompasses, for instance, the achievement of gender equality, the assurance of safe cities, and enabling access to affordable, reliable and sustainable energy for all (Walker et al., 2019). These objectives were finalized at the COP21 Sustainable Innovation Forum held in Paris, France, in December 2015, when the state signatories to the United Nations Framework Convention on Climate Change (UNFCCC) agreed with the ambition to transition the world’s unsustainable trajectory into a sustainable path (Robbins, 2016). COP21 was attended by prominent financial leaders, royalties, presidents and political

authorities, and is thus regarded as a turning point for the development of a sustainable future.

Governments and regulators are key actors in reaching the SDGs (El-Jardali et al., 2018).However, the role of the private sector should not be underestimated, given its vast amount of financial resources and impact on the world. To reach the SDGs, businesses across the globe require a

fundamental rethink. Trillions of USD need to be invested in mobilizing and accelerating progress in order to reach the SDGs (Walker et al., 2019). This mobilization has to, and is, partly driven by funds investing in the private sector. Governments and regulations can go far, but without

incorporating the owners of the companies (i.e., investors), the impediments to change are difficult to overcome. Luckily, the trend is that a growing number of investors are pursuing sustainable investments (Lewellyn et al., 2017). BlackRock, one of the largest investment funds in the world with assets exceeding 5.4 trillion USD, recently published a letter highlighting the issue. In the letter

“A fundamental reshaping of finance – climate risk is investment risk”, Blackrock states that the organization’s goal is to push towards sustainable development (Fink, 2019). This Sustainable

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development requires a change in business activity and businesses’ way of generating profits. Long- term sustainability cannot be achieved when companies have as sole aim to derive profit (regardless of sustainability impact). Historically, this has largely been the case in the Western world, and in line with these businesses’ reporting has mainly consisted of financial data. As the tide toward

sustainable development has gained strength, the focus of reporting has started to change. Non- financial information has garnered increased importance and interest by all stakeholders. Financial assets are now not only analyzed with the standardized profit spreadsheet, discounted cash flow analysis and P/E-numbers, but also by its environmental, social and governmental impact,

commonly referred to as ESG-rating (Economic, Social and Governance) (Aybars et al., 2019). The ESG-issues that received most attention and consideration from institutional investors during 2018 were tobacco, gun control, climate change, conflict risk, board issues and human rights (Hill, 2020).

The invigorated emphasis on ESG related topics shows that businesses and investors are increasingly focused and aware of the impact of their internal and external company activities (Camilleri, 2015). For this focus and awareness to yield benefits, it is essential to be able to quantify and accurately communicate the positive interventions to various stakeholders as well as the public.

This is done via non-financial reporting, in this study referred to as sustainability reporting. While non-financial reporting has existed for a long time, the gravity and importance of it is a relatively nascent phenomenon. Thus, it comes with a spate of issues that could decrease the momentum of, and potentially jeopardize, the movement towards sustainability among investors and companies.

There are three main issues with sustainability reporting. Firstly, stakeholders receive information in inconsistent formats, varying reporting periods and lacking necessary content, which impedes comparability. Secondly, although guidelines and frameworks are emerging, sources vary among different countries and sectors, which results in different standards being applied (Belkhir et. al., 2017). Thirdly, companies are on a larger scale requested to provide multi-scale information regarding their environmental and social performance, which they do not always have the capabilities to do. For stakeholders to be able to give sustainability the gravity and importance it deserves, the underlying decision-making material needs to be up to par. It is difficult to base decisions on inconsistent data, and the optimal allocation of resources towards sustainable development is hard to achieve. Regardless of the obstacles as mentioned earlier, sustainability reporting is essential. Besides, transparency, accountability, legitimacy, stakeholder, and political- economic theories all motivate it(Herzig & Schaltegger, 2011).

Increased focus on non-financial reporting comes with the corollary that companies are no longer able to pursue their activities in isolation from the social environment. Company stakeholders unite in their increased engagement in the social and environmental undertakings of the company (Hassel

& Semenova, 2018). The stakeholders, however, differ in terms of their beliefs of what type of information is required to ensure that a company is emphasizing its Corporate Social Responsibility (CSR). CSR includes several corporate activities that have a specific focus on the welfare of

stakeholder groups, e.g., society and to preserve the natural environment (Sprinkle & Maines, 2010).

In other term, CSR illustrates an organization’s way of embracing a broader social responsibility that goes beyond the profit criteria (Khojastehpour & Johns, 2014).

The informational requisites, however, depend on investor type. Private investors tend to focus on ad-hoc and top-of-mind sustainability topics of their own accord while investors with policies regulating their investment decisions, e.g., institutional investors, have forced requirements upon them to be transparent and motivate their investment decisions to external parties (McCahery et. al.,

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2016). Regardless of the investor, there has been a rise in demand for non-financial information from companies’ shareholders and other stakeholders e.g., governmental entities. There is a higher pressure for companies to not only managing economic, environmental and social impacts of its organizations but also to communicate and report this in a satisfying and easily comparable manner to its various stakeholders. This information creation should be a description of the visionary means of the company, such as its’ future sustainability goals and targets, as well as sustainability actions pursued by the company. Furthermore, it should include current processes and measures in place in order to reassure the shareholders about the company’s neutral or positive contribution to the sustainable development of society. Companies’ that lack such an approach to reporting risk losing out on a large subset of investors. This information flow from management to stakeholders needs to be established from a continuous mutual understanding of dialogue and reporting in line with the requirements of the critical stakeholders (Herzig & Schaltegger, 2011).

The evolution of non-financial reporting, such as sustainability reporting, is advancing briskly, and reporting standards are continuously refined. Organizations are forced to be more transparent in disclosing their actions and impact on a broad set of measures to the public. Sustainability reporting has become an essential factor for large companies to maintain their competitive advantage, attract capital and de-risk the operations (Herzig & Schaltegger, 2011).

The importance of sustainability reporting does not only apply to individual companies. Funds that invest in a vast amount of different securities are also under demand from investors to report their social impact. For this to be achieved, it is necessary that fund managers compile the reporting from all companies included in the fund portfolio. On a fund level, the difficulties of incommensurate sustainability reporting are compounded, as the impact of companies across different sectors and geographies is to be compiled. As a consequence of this, unsurprisingly, funds’ sustainability reporting is varied and often lacking in depth and comparability. Funds’ have difficulties with providing an overview of their environmental, social and governance impact, as the data from their investments are difficult to quantify and aggregate due to the lack of consistency. Companies in different sectors report different key impact values. The aggregation of a fund’s total impact of assets is, therefore, associated with large challenges. For example, indicators to measure

environmental impact have proved difficult due to lack of technology. Moreover, companies find it hard to quantify the social criteria of ESG, which makes it very difficult to compare companies’

relative performance in those areas (Adams, 2019).

To conclude, it is difficult for funds to gather enough consistent data to summarize in their reports.

Reliable data is only available from a previous short period, which makes it challenging to identify sustainability improvements over time of a specific fund (Ailman, 2017). As institutional investors via various funds own approximately 80-90% of equities on many stock markets (see, e.g., Ullah &

Amali, 2010 and Lewellen, 2011) on a macro level, it is paramount that they get sustainability reporting right to drive change and achieve the SDGs. On a micro level, institutional investors and investment funds can gain a competitive edge through accurate and comparable sustainability

reporting, as the demand for this from various pockets of capital increases. Developing sustainability reporting is, accordingly, on the top of the agenda for most funds. Given the nascence of the topic, however, funds and investors are struggling, and there is a sense of the blind leading the blind.

Funds do not know what investors seek, companies do not know what funds seek, and investors do not know what funds and companies can realistically report and achieve. The will and resolution to change exist, but the framework is, to some extent, inadequate. It is thus imperative to develop the

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framework, to better allocate the massive amounts of institutional capital and drive it towards reaching the 17 SDGs. To do this, funds need to know what institutional investors seek in funds’

sustainability reports. They need to know what ESG information is requested an how this effectively can be presented in the reports. Furthermore, fund companies need information regarding how institutional investors prioritize this information in their investment decision-making process – which summarizes up to the aim of this study.

1.2 Purpose and Research Questions

This study aims to empirically investigate how large institutional investors in Sweden use

sustainability reports from funds when evaluating potential investment decisions. More specifically, the aim is to assess how the investors experience the different ESG indicators included in the reports today and thus try to identify how the reports provided by the funds today differ from the expectations of the investors. We do not wish to form a uniform framework for sustainability reports of funds to investors. Still, the goal is first to explore what is actually lacking in the current report and thus indicate a direction for future studies within the field. The research questions that we aim to answer in this study can be formulated as follows:

- What ESG information is important for institutional investors when making and monitoring investments?

- What ESG information is missing or needs to be changed in the current sustainability reports?

1.3 Delimitations

We chose to focus on institutional investors since they seemingly have come further than other investors when it comes to integrating sustainability into their investment decisions (Ailman et. al., 2017). Furthermore, we have chosen to delimitate us to Sweden and the different regions within the country, since we are considering the study be a too broad investigation for a master thesis to perform a multi-country analysis. The reason for this is since Sweden is one of the leaders in the field of sustainability reporting. This demarcation is also conducted to facilitate the interview process.

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1.4 Expected Contribution of the study

The majority of previously reported studies within the field of sustainability emerged during the beginning of the 21st century when non-financial reporting emerged as a phenomenon. Earlier studies have in large scale focused on different sustainable investing methods utilizing different terms. For example, many prior studies used Sustainable and Responsible Investment (SRI) as an investing concept, which focuses on environmental and social factors when investing. At the same time, ESG emphasizes how economic, social and governance factors impact investment market performances. Studies have previously elaborated on ESG in non-financial reporting (see, e.g., Ailman et al., 2017). Furthermore, there has also been Sweden-oriented studies investigating sustainability reporting in various settings and with diverse motives (Hedberg & von Malmborg, 2003, Habek & Wolniak, 2013; Rimmel & Jonäll, K, 2013; Isaksson, 2019).To our best knowledge, however, there has been no prior academic research focusing on institutional investors ESG preferences in sustainability reports in the context of Sweden.

In the interplay of Agenda 2030, several initiatives have emerged in the field of non-reporting as sustainability is gaining increased attention. Thus, many large investors have experienced an

increased pressure to deliver accurate impact data. However, as the demands increase at a faster rate than the reporting techniques, and thus portfolio managers require an indicator on which

improvements should be prioritized, this study may have important implications for such a process.

As Sweden is in the forefront of sustainability reporting and ahead of many countries regarding sustainability achievements, the present study could also serve as a guideline for countries which have not yet developed their reporting process to the same level as in Sweden. Taking inspirations from Swedish political institutions may at least provide foreign institutions with a starting point from where to emanate their organizations’ sustainability reports from and thereby mitigate the risk for a time consuming “trial-and-error” scenario.

In conclusion, the present study could be of interest to several different stakeholders. Predominantly it may bring value to Swedish portfolio managers, who are expected to deliver more extensive and detailed reports to large institutional investors. It may also be of benefit for foreign portfolio managers, who can gain inspiration regarding selections in their evolving reports. Furthermore, if this study proves to contain valuable directives that are feasible, the institutional investors will gain benefit as well since their desired report-ingredients are, to a greater extent, implemented in the reports.

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2. Preliminaries

In this section, key elements and details regarding the main actors of the study are presented to provide the reader with basic knowledge to facilitate the comprehension of the thesis. The concept of CSR in business is described to

comprehend how sustainable businesses included in funds utilize CSR in their business models. Furthermore, the basics about funds are described in order to give a reader without economic knowledge an initial insight.

2.1 Institutional Investors

The point of view for this study is from an institutional investor perspective, with assumptions mainly originating from interviews with municipalities and regions in Sweden. What is essential to take into account when drawing inferences from our results is that these organizations somewhat differs from other large institutional investors, such as banks and insurance companies.

Swedish regions are built up as autonomous units with a geographical area of responsibility.

Municipalities are included in this area, defined as political organizations with directly selected policymakers in accordance to the political regime chosen for the municipality. These types of institutions generally have a finance department, where they might have one or two individuals responsible for investing the institutional assets, such as pension funds, endowments and trust funds, etc. The appropriate investment strategies are regulated by the institutional financial policy determined by the political regime. The assets are often long-term assets meant to provide for future pensions for employees, finance the region and municipality activities and ensure that financial cover exists for unexpected events. The size of the assets ranges but is usually in dimension of 100s SEKm up to several SEKbn. Thus, these financial department possesses a large responsibility to properly allocate these assets in funds, currencies and interest funds that can provide stable returns, and the aim is not necessarily to maximize profits.

Furthermore, sustainability is a widely discussed topic permeating Swedish governmental

institutions. Thus all regions and municipalities have requirements beyond risk and return, although the scope varies, in their financial policy to take into account ESG factors in their investment decisions. The evaluation process and monitoring of these factors are provided to the institutions in different forms depending on fund company and preferences of the policymakers and the head of finance with the sustainability reports being one provider of ESG information. The sustainability reports are issued to all major stakeholders of funds either every 3rd, 6th or 12th month.

There are several reasons explaining why governmental institutions demand more within

sustainability. For example, governmental institutions demand more within sustainability since they get examined and tend to have more external responsibility to include sustainability reporting in their annual reports. Furthermore, regions and municipalities are managing their assets as public documents, which also makes it possible for everyone to examine everything they do and invest in, which further facilitates our process of getting access to data. A changing point towards more sustainable investments for regions and municipalities in Sweden was in 2015, after COP21, when Sveriges Radio P4 Västerbotten examined all investments in 117 municipalities and 15 regions and published that investments in fossil fuels were made (Antonsson, 2015). Even though nearly all of

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them had sustainability policies describing how they were limiting their climate impact, it became a scandal that quickly made them relocate their assets. However, as mentioned above the level of integrating sustainability in investment policies amongst the different regions and municipalities still vary due to different political reasons and resource availability.

2.2 The Sharpe Ratio

The conjunction between return and risk has been one of the most large-scale investigated topics in financial economics (Theodossiou & Savva, 2015). The Sharpe ratio was introduced in 1966 as a means to measure the performance of mutual funds. The concept is proposed as a reward-to- variability ratio. In simplified terms, the actual idea of the ratio is a description of the excess return received for the extra volatility endured when holding a more risk-exposed asset. While it either explicitly or implicitly is assumed that historical returns can generate at least some predictability for future returns (Sharpe, 1994). While the Sharpe ratio contains properties that might help facilitate the evaluation of historical risk-adjusted performance, it does not imply a lower-volatility fund for investors seeking a measurement that indicates a justified risk-return ratio.

However, this conventional manner of assessing an investment opportunity is becoming less computable. Risk is emerging in several aspects and from multiple unpredictable dimensions, partly from traditional financial analysis aspects such as market conditions but also from new emerging threats such as environmental changes. Nonetheless, conventional assessments of investment opportunities are essential to bear in mind when identifying preferences of institutional investors since the ratio between risk and return is still considered to be deeply rooted in the investment valuation (Theodossiou & Savva, 2015).

2.3 Corporate Social Responsibility

Companies are putting increased focus on improving their CSR. To engage in CSR matters is described as adjusting a company’s business model to enhance society and the environment instead of harming them, yet still aligned with the original company course (Chen, 2020). The following quotation can on society level illustrate the potential outcome of these interventions:

“CSR can contribute towards achieving the strategic goal of becoming, the most competitive and dynamic knowledge- based economy (referring to the EU) in the world, capable of sustainable economic growth with more and better jobs and greater social cohesion” (Eurofund, 2003).

Previously, CSR has been offered as a voluntary complement to otherwise traditionally strict regulation by convincing corporations to both approaches internal and global matters. In this way, CSR has helped to contribute to public sustainability goals. However, more is required to reach the SDGs - mainly in terms of financial measures that could help facilitate businesses transition process (EU, 2008). The conversion creates difficulties for industries with longstanding investment horizons.

These companies innovating sustainable solutions require funding to expand into successful projects simultaneously as investors require motivation in terms of returns. Previously, a combination of these two has been necessary for green technology to grow and fill out the gap in energy supply as fossil fuels are being phased out (Arutyunov et al., 2017). However, there has been an increased

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emphasis on other benefits derived from responsible investing, exceeding those of economic sorts, such as social and governance advantages (Riedl & Smeets, 2017).

Concerning the information stated above, the issue of profitability difference between conventional funds compared to sustainable investment funds has been questioned. Sustainable investments can be defined according to the European Sustainable Investment Forum as “SRIs is a long-term oriented investment approach that integrates ESG factors in the research, analysis, and selection process of securities within an investment portfolio.” (Eurosif, 2018) Hence, sustainable investment processes are processes that aim to engage in projects with activities generating benefits for the environment as well as providing

positive social and causal governance effects. Since sustainable projects often show long-term positive effects rather than short-term, the investments generate similar patterns in profitability.

Thus, sustainable funds generally realize long-term profit rather than focusing on short-term returns (van der Zwan et al., 2019).

The previous outlook was that costs for running a firm sustainable would supposedly decrease profits and destroy shareholder value (Humphrey, 2012). However, this is averted by both earlier and more recent research, showing that there is no significant evidence that sustainability funds sacrifice financial performance when being compared to generic ones (Mervelsemper et al., 2013).

Besides, the above was further confirmed when comparing socially responsible funds to big trendsetters such as S&P 500 (Bello, 2005). In more recent years, the attitude implying distrust against sustainable investing seems to have diminished (Humphrey, 2012). Financial market

participants integrate increasing emphasis on the ESG-criteria in their investment decisions (Busch et al., 2015). Furthermore, the Financial Times reported a double increase in capital invested in sustainable funds during 2019 compared to 2018, corresponding to an amount of 120 billion euros (Flood, 2020).

Accordingly, the general trend is that sustainable investing strategies are increasingly influencing portfolio management among institutional investors (van der Zwan et al., 2019).

Impact studies have demonstrated that asset flows generated from funds can have large effects on the environment. (Poudyal et al., 2018) There is also a general trend showing that investors care more and more about sustainability than what might be perceived. Previous research shows that sustainability performance is gaining increased attention when investors evaluate whether or not to invest in a business. There is also, as mentioned above, an increased correlation between ESG performance and perceived long-term value creation among investors, which explains the increased attention the subject has received over the last decade (Unruh et al., 2016). Another explanation is that there is an advanced understanding that, for organizations to thrive and survive, they must commit to making decisions and pursuing actions that will serve society’s’ interest (Adams, 2019).

2.4 Funds

A fund is a collection of various securities forming a portfolio that can be co-owned by individuals, groups, or organizations. A fund can include multiple types of interest-based securities or equity securities, such as different ratios of stocks, currencies, obligations, and other securities. There exist several different categories of funds, but the most common are mutual funds, hedge funds, pension funds, and trust funds. The value of the units within a fund is determined by dividing the prevailing

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market value of the assets by the total number of co-owners, which equals the Net Asset Value (NAV). If the value in the fund’s assets increases, the NAV will increase as well (Chen, 2020).

Mutual funds are open-ended investment funds. The fund has a supply of assets gathered from different investors invested in all sorts of securities, such as money market instruments, bonds, and stocks. Mutual funds create opportunities for individuals and small-scale organizations to invest in the composition of a diverse portfolio that is being monitored by money managers with expertise within the area (Hayes, 2020).

Pension funds are ensuring an income for people who retire, and its equity is raised by collecting a percentage of individuals’ monthly salary. Due to its long-term purpose, pension funds are often associated with less risk but thus also generate slower asset expansion. To lower the risks even further, pension funds often perform a gradual relocation from the stock market to the fixed income market (Whiteside, 2019).

Trust funds are usually created to build wealth for the coming generations. It is a certain kind of legal entity that ensures assets for an organization, group, or person. A grantor establishes the trust fund and, after that, donates real estate, stocks, cash, private businesses, bonds, or similar to the fund. A trustee is responsible for the trust fund and then, later on, gives access to the beneficiary, who then owns the assets and can manage them with the rules set by the grantor (Oshio, 2004).

Funds are often rated in regard to how they deliver returns in comparison to relevant fund indexes.

This creates incentives for fund managers to allocate fund assets towards well-performing

companies, since these managers are not rarely rewarded based on the financial performance of the fund (Sandberg, 2008). The responsibility of how the fund’s assets are being invested and the

implementation of a strategy belongs to the fund manager. The investors must carefully consider the investment strategy and values that the fund manager has before they invest in the fund. The return rate of funds is mostly based on market forces. Therefore, it is highly essential for the fund manager to be aware of tendencies and continuously investigate economic changes on both a micro- and macro level, including global topics such as sustainability, to achieve successful investments (Chen, 2019).

Figure 1. Illustration of fund cash flow. The figure also shows the professional relationship between institutional investors and the portfolio manager.

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3. Literature review

In this section, we present the literature and theory that has relevance for the thesis. First, the introduction of the history of sustainability reporting is presented. This part is followed by nascent phenomena and current happenings within the field of sustainability reporting, as well as including background regarding institutional investors and their investment decision-making criteria. Lastly, the strategies for sustainable investing is presented, along with the problematization of the field.

3.1 History of sustainability reporting

This increased attention and concern regarding business sustainability performance has led to several companies starting to actively manage and account for the emissions that are by-products of their business activities by creating reports that summarize, e.g., CO2-impact (Adams, 2019). These reports are, after that, collected and reviewed by evaluating investors. This can be done either directly between the investor and company or through a multi-channel stakeholder activity where funds and other investment institutions summarize their portfolio emissions before they transfer it to their current or potential investors. The trend towards non-financial reporting, or sustainability reporting, begun in the 1990s and has continued to develop during the 21st century. Sustainability reporting can be described as corporate performance descriptive being reported with a basis in the company’s emphasis on the integration of ESG issues in their business activities (Adams, 2019). In other words, these reports do evaluate not only a business or organization’s financial performance but also its performance regarding broader social and environmental perspectives. For example, philanthropy and employee health, gender equality, ethics, and ethnic diversification is becoming parameters to take into account to evaluate business accomplishments (Kolk, 2003). Besides, the company reports can include an attempt to display the quantified carbon footprint that is caused by the company tasks (Penz & Polsa, 2018).

3.2 Inside-out or Outside-In?

Higher demands are being put on organizations to display their corporate activities, mainly from a sustainability point of view. As of today, a lot of the content provided in sustainability reports are qualitative descriptions of value statements and future prospects, aiming at both external and internal beneficiaries. Although useful, these documents lack both credibility and veracity. To establish substantive corporate sustainability reports, credible information needs to be provided both through quantitative measures of ESG impact, qualitative explanations of corporate activities as well as sequent resulting progress in financial terms. Concludingly, an organization's sustainability accounting process is highly linked to the reporting process, and the performance management merging these two can be executed in two ways (Schaltegger et. al., 2006). The first approach is to utilize an inside-out perspective. This perspective is characterized by a reporting procedure created as an outcome of an organizational strategy. For this process, all relevant aspects of environmental, social and governance factors are accounted for since these might affect the company performance.

Thus, strategically relevant indicators that might affect the business constitutes the fundamental basis of the reports. In simplified terms, the company activities and profile compose the structure of the report with corporate-relevant key performance indicators (KPI), i.e., tonnes CO²/SEKm

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revenue. Thus, the company may benchmark its current accomplishments towards its previous achievements in the field of sustainability.

For the outside-in perspective, a different outlook is exercised. For this approach, the accountability of a company’s’ sustainability achievements is driven by reporting formats and guidelines.

Organizational sustainability priorities are formed out of external requirements arrayed in reporting guidelines, sustainability index and rankings as well as assessment schemes - all consulted to

recognize sustainability profiling and achievements. This external expectation forces companies to publicly display their engagement in sustainability matters, thus driving corporates to improvement.

What can be concluded is that both the inside-out and outside-in perspective must be considered for companies with ambitions towards improving their sustainability (Schaltegger et. al., 2006).

3.3 Agenda 2030 and the EU Taxonomy

The UNFCCC is the primary intergovernmental organization for targeting the issue of climate change. As mentioned in the introduction, several SDGs are set up to be reached by 2030, focusing on climate change issues, for example, affordable and clean energy for all, a shift towards sustainable cities, and preservation of life below water. There is also a large focus on keeping the earth

temperature increase at a minimum, due to the potential large causal effects a too large climb on the temperature scale would have on environmental and ecological settings. The goal that has been set is to keep the increase in average earth temperature to preferred 1.5 degrees Celsius increase, or

absolute maximum 2 degrees Celsius increase, regarding pre-industrial temperature levels (United Nations, 2015).

Applying principles, indicators, and other assessment tools in line with those of a circular economy are increasingly recommended as a convenient solution to meet the goals to achieve sustainable development (Saidani et al., 2019). This is not only tools designed to facilitate and manage industrials, manufacturers, and other producers, but it is also tools meant to engage in a

reorientation for financial assets. This redistribution is intended to shift the capital flows towards investments that will generate sustainable and inclusive growth (European Commission, 2018). In 2018, the development of an EU classification system for sustainable activities was created, also referred to as the EU Taxonomy. Part of this taxonomy is an action plan on sustainable finance established in July 2018. The EU Taxonomy, as it is described by the Technical Expert Group (TEG) is as follows:

“The EU Taxonomy is a tool to help investors, companies, issuers, and project promoters navigate the transition to a low-carbon, resilient, and resource-efficient economy”

(EU TEG on Sustainable Finance, 2020).

One purpose of the EU Taxonomy is to develop a framework to facilitate sustainable investments.

Within this framework, TEG is requested to develop recommendations for technical screening criteria for those economic activities that have extensive beneficiation with regards to climate change mitigation.

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The final agreement came in December 2019, where the European Parliament and the Council went to a political agreement to proceed with the EU Taxonomy. On the 9th of March 2020, the TEG published its concluding report on the EU Taxonomy, including updated screening criteria for climate change mitigation and adaptation activities, as well as an updated methodology section to support these criteria. For example, TEG has developed Excel tools to help users of the taxonomy to easier survey their activities. Further development of the EU Taxonomy will take place in autumn 2020, while the initial investor- and company sustainability reports using the EU Taxonomy

framework are due at the start of the year 2022 (European Commission, 2020).

The taxonomy creates accomplishment thresholds, also referred to above as technical screening criteria, for economic activities to help companies, issuers, and project promoters to get access to green financing to improve their environmental performance. The criteria are supposed to

contribute to at least one of six environmental objectives: climate change mitigation, climate change adaptation, sustainable and protection of water and marine resources, a transition to a circular economy, pollution prevention control and protection and restoration of biodiversity and

ecosystems. Followingly, while one objective is focused upon, the other five should not be harmed.

Finally, the economic activities must meet the minimum safeguards of the Organization for

Economic Cooperation and Development (OECD) Guidelines on Multinational Enterprises and the UN Guiding Principles on Business and Human Rights.

Figure 2. (EU TEG on Sustainable Finance, 2020).

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3.4 Investments and ESG

Sustainable investments are a widely discussed concept focusing on the link between ESG factors and stock performance (Ammann et al., 2018). The perception is that investment today is based upon more criteria than financial returns and investment decision are often more complex including ethical and societal assessments (Statman, 2008). The concept of SRI takes into account the

potential causal effects of an investment in a company by screening the companies according to their CSR. Such screening can be done but is not delimited to assessing how the company runs its business with regards to ESG matters (Pokorna, 2017). SRI investing can be explained by factors beyond sustainability, such as social signalling and social preferences amongst institutional investors (Wallis & Klein, 2014). To invest sustainable is, therefore, not solely an action of profit-seeking measures, but a multi-attribute function with benefits creating utility corresponding to those of financial returns (Riedl & Smeets, 2017).

Eurosif defines three different types of assessment strategies to evaluate an investment, according to ESG. First, there is a non-systematic deliverance of ESG related information made available to analysts and portfolio managers. Second, there is a systematic consideration and, partly, the inclusion of ESG research into financial evaluations and ratings of investment opportunities. Finally, the third strategy turns recommendations into regulations, including mandatory investment constraints that originate from extensive ESG analysis (Eurosif, 2014).

A lot of conventional managers are increasingly integrating responsible investing in their investment procedures using one of the three strategies mentioned above, thus utilizing the benefits of analyzing their investments per the ESG criteria. A large contribution has previously been that ESG helps to manage risk as well as alerting red flags (van Duurenet al.., 2015). Recently, however, ESG criteria are increasingly used to distinguish funds as either being sustainable investment prospects or being unsustainable (Ammann et al., 2018).

3.5 Institutional Investors

There is evidence showing that institutional investors are increasingly emphasizing CSR related matters in their investment decisions, and the format of corporate ownership structure increasingly entails for investors to influence firm activities (Kim et al., 2018). As stated above, CSR activities are associated with ameliorated competitive advantages for a firm. This is because CSR can be related to, e.g., the increased reputation of the business (Herzig & Schaltegger, 2011). Reputation can be described from various types of disciplines, and thus derive different meanings. Accountancy sees reputation as an intangible asset, i.e., an asset that is a mere feeling or perception, and one that should receive financial attention. From a sociology perspective, on the other hand, reputation is perceived as an accumulated evaluation of firm performance and relative to norms and expectations (Fombrun & van Riel, 1997). Concludingly, since institutional investors are often acting as major stakeholders, the firm’s CSR level increases, leading to that the corporate ownership might have a positive alteration of the firm’s performance (Alshammari, 2015).

Below, it is discussed what literature states about the incentives for institutional investors to involve CSR matters in their investment decisions.

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3.5.1 Decision-making process

The task analysis when investors are screening new investment prospects is narrowed down to (1) receiving proper information relevant for the decision-making and (2) evaluating this information (Bouwman et al., 1987). For (2), institutional investors can be identified as having certain

preferences for corporate policies when it comes to screening investment prospects (Wang & Wie, 2019). Traditional crucial criteria for following through an investment is a reasonable weight between risk and expected return, according to Sharpe (1994). However, the incorporation of ESG factors in financial risk assessment is gaining increased attention across established investors (Ziolo et al., 2020), and it can furthermore clearly be stated that institutional investors can act as a

significant stakeholder in regard to investments and societal impact (Tao et al., 2020).

3.5.1.1 Managing reputation and the social aspect

One main factor that motivates ESG investing among institutional investors is the implications that the investment decision entails. Research proves that employing a political-cultural approach to markets can increase emphasis on including ESG factors in investment decisions (Arjaliés, 2010).

Furthermore, the shift towards institutional investors increasingly engaging in CSR matters is accompanied by the incorporation of social attributes in the investment criteria. It can be argued that institutional investors are affected by two major drivers in their investment decisions; economic incentives and social norms. Social norms can imply an altruistic valuation of the social benefits of the investor aligning with the CSR activities of the investment object. Mutual funds that exclusively market themselves as prioritizing CSR attributes in their portfolio are specifically considering this since these funds market themselves as, e.g., avoiding controversial products or sectors, making them an intriguing object for institutional investors valuing social indicators (Nofsinger, 2019).

Research also shows that institutional investors may avoid investing in objectives illustrating

environmental and social weaknesses merely to minimize their exposure to idiosyncratic event risks, thus avoiding potential public scandals (Nofsinger, 2019). This implies that valuing social norms also has a financial motive because sustainability efforts can enhance economic value, while scandals have the potential to destroy it (Petersen & Vredenburg, 2009).

3.5.1.2 Politics and Financial Policy

The case of regions and municipalities is that their assets need to be preserved in order to ensure long-term solidity and security for government institutions, hospitals, and other functions necessary for the community to operate appropriately. A financial policy exists to regulate the process, i.e., to ensure safe, controlled investments of governmental assets. The financial policy of the institutional investors varies between different regions and municipalities. Still, the main parts included are regulations regarding tolerated risk-levels, expected return-levels, and, until recently, fundamental sustainability criteria necessary for the investment prospects. “Economic growth shall be sustainable, which means that it is to be achieved without unacceptable effects on the environment, the climate, or people’s health”

(Regeringskansliet, 2011). Studies made on the investment decision process of institutional investors show that they perceive high CSR not only as a competitive advantage of a firm but also as a

mechanism through which they can mitigate the risk of their investments (Alshammari, 2015).

Furthermore, many investors argue that ESG practices, including corporate diversity, prioritizing

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human rights in production supply chains, and climate change, can also affect returns (Starks et al., 2017). Finally, ESG information is a helpful tool when comparing and evaluating the standard of management in portfolio companies, such as mutual funds (Ailman et al., 2017).

3.5.2 ESG-criteria

Studies show that institutional investors with a long-term investment horizon prioritize ESG-firms to a larger extent than short-term investors (Starks et al. 2017). Extant literature suggests a positive relationship between ESG attributes such as improved employee satisfaction, curbing of

environmental pollution and development of ethical producer-supplier standards, and increased firm performance as well as reduced litigation risk - but in the long run. Shareholders with investment expectations might prioritize differently - encouraging managers to augment short-term earnings even though this might negatively affect long-term value (Starks et al., 2017). The view on ESG projects might also emanate from an asymmetric information situation, where the investors do not possess enough insight into the depth of ESG activities (Froot et al., 1992). Concludingly,

investment horizon is a crucial aspect to take into consideration when evaluating institutional investors view of ESG (Eccles et al., 2018).

Firms implementing ESG strategies are often associated with cost in the short-term, and thus these firms sacrifice these returns for a long-term profit (Starks et. al., 2017). This does, however, affect the stakeholder's earnings. Thus, municipalities and regions that, in some aspects, require continuous cash flow to finance their activities cannot solely place their assets in ESG projects, which are not expected to provide any short-term returns. To spread risk and to receive continuous dividends, these organizations are therefore implied to diversify their portfolio. This dispersion strategy for investing varies between organizations but is often defined and limited by the financial policy (Regeringskansliet, 2011).

3.5.3 Self-transcendent or Organizational Control?

Previous research identified that investment decision-makers can fluctuate significantly when valuing environmentally friendly investment options. In a professional context, these individuals may

illustrate larger ambitions towards prioritizing sustainability than they do privately (Nilsson & Biel, 2008). As for institutional investors, their motives to be socially responsible is partly formed by their self-transcendent values to be environmentally friendly. Institutional investors are in fact, compared to private investors and investment institutions, believed to be influenced to some extent by their own sustainability beliefs when considering investment opportunities. These investors are also greatly influenced by the belief that ESG investment opportunities is supplied by lower financial risk. Institutional investors are also controlled by their internal regulations to allocate resources to risk-minimizing and return-maximizing objects. This is due to the fact that they possess both a financial and non-financial fiduciary duty towards their organization. Investments made in the organization name must coincide with organizational beliefs and values. Furthermore, investment decisions must be motivated towards management which entails decreased opportunity for individual institutional investors to act on their own accord (Jansson & Biel, 2011).

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3.5.4 Risk aversion

Multiple sources of risks are a fact of any investment. These risks can correlate with each other or be seperated. Even though the risks might be statistically independent, bearing one risk diminishes the likelihood that investors wish to bear additional risks (Kimball, 1993). Previous studies have shown that more elaborated ESG descriptions is positively related to increased risk aversion. In other words, investors that wishes to mitigate risk to a higher extent prefer to be presented with a larger amount of ESG information. It has also been demonstrated that an investment behavior which might implicate higher risk largely reduces the likelihood for the investment to be performed. Even though an investment behaviour has the prospect of generating large benefits with only slight increased risk, the prospect of the investment being performed heavily decreases (Przychodzen et al., 2016).

Risk attitudes depends on several factors e.g., psychological, gender, and age (Shulman & Cauffman, 2014). Individuals are thus more or less sensitive to risk depending on factors such as behavior of people in the same social- or professional group. There is also differences in risk aversion depending on country, where European countries are considered to be more risk averse than e.g., the US (Weber et al., 2002). Furthermore, there is evidence of a herding behavior amongst institutional investors when implementing SRI strategies. The herding behavior implicates that investors prefer to choose the sustainable alternatives that other investors have already chosen. By choosing what others choose, the behavior is perceived to be defendable (Guyatt, 2006).

3.6 Strategies for Sustainable investing

Following the integration of ESG components in screening, asset managers also increasingly consider ESG factors into the conventional financial analysis and investment decision process (Scholtens, 2014). This is one of several different investment strategies for companies pursuing an CSR integrated portfolio. All strategies include some sort of screening process when the company is being evaluated through a sustainability lens.

Investing in businesses that reach up to or excels the criteria of the contemporaneous denomination of sustainability is one strategy emanating from a positive screening process (Kolstad, 2015).

However, due to the lack of a solid ambit of how sustainability should be defined, there is no guarantee that these investments are considered benign infinitely (Moore et al., 2017). For a fund wishing to invest sustainably, there are several other strategies with specific purposes valuable to consider. Examples of these are the facilitation of business ESG projects, also called engagement investing in conversion companies. Furthermore, there is an exclusion-strategy of companies not

considered to reach up to the current sustainability requirements. Finally, investors can also choose to impact invest. Investors then seek to invest in companies that creates solutions aiming to facilitate sustainable development, purported as solution companies. All these three are discussed at the end of this section. Furthermore, funds can choose to assign parts of the portfolio to address these issues, or they can act as thematic investment funds, which are focusing on single or multiple sustainability issues. These funds are solely devoting their assets, for example, clean-tech, renewable energy, lifestyle- or healthy ageing, etc. (Scholtens, 2014).

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Following the thematic investment strategy is the approach referred to as a Best-in-class investment selection, where the investor follows approaches loading to the best-performing investment prospects in a specific field following ESG criteria is included in the portfolio. The minimum requirement levels for investing in a particular investment candidate is varying between funds, but an example of an ESG fund criteria is to limitate its investment universe to screening only the top 30 percent regarding sustainability rating for a group of companies in a particular industry. Finally, funds can also decide to emanate their draft from a norm-based screening. This is an approach that integrates the investment objectives context and its compliance with international guidelines. In other words, objectives are assessed only if they reach standards established by international sustainability policymakers such as OECD, UN, etc., (Scholtens, 2014).

3.6.1 Exclusion strategy

Investigation of the impact of investments suggests that for a long-term investment horizon, institutional investors choose an exclusion-strategy when investing (Cox, 2004). The exclusion process is the result of a negative screening process, where companies that do not reach the social- or environmental criteria of the investment universe are ostracized (Kolstad, 2015). Funds that desire to invest more socially responsible for contributing to a better society often use exclusion as a method. This entails that funds exclude investments in companies whose main organizational activities pertain to areas such as tobacco, pornography, alcohol, gambling and weapons (Scholtens, 2014). In recent years, divestment of objectives containing significant fossil fuel exposure is being added to the exclusion list (Trinks et al. 2018). While the fossil fuel criterium has gained

insignificance, it is still a nascent trend, and not as entrenched and deeply rooted as the criteria of alcohol etc., mentioned above. Social responsibility was the main focus of the exclusion method early on, but there is now a trend towards including environmental responsibility as well (Camilleri, 2017). In the timeframe of the years 1990-1998, it was shown that mutual funds that excluded to invest in companies that obtain more than two percent of their sales from military weapons, alcohol, tobacco and gambling services or products performed better and achieved greater returns than conventional mutual funds. This proved that the method of excluding companies that are not considered ethical also has financial benefits (Statman, 2000).

3.6.2 Engagement and Voting strategy

In recent years, there has been a shift in responsible investing towards exercising engagement strategies, where investors engage in companies in the process of a sustainability transition (Kolstad, 2015). The strategy explicitly aims to influence the habits of business management or to augment organizational disclosure (Scholtens, 2014). The engagement strategy entails funds investing in companies that are not currently considered sustainable but with ambitions for change. Either the fund can invest in whole companies undergoing sustainability transitions, or invest in specific projects that are contributing to the companies’ transition towards becoming a more sustainable organization. Engagement strategies can also include investing in prospects lacking sustainability ambitions but where the fund itself gains a company share large enough to allow themself to introduce ESG factors. Owning a large number of shares in business enables the fund to approach company management and addressing perceived issues in its practices, with a successful engagement transforming irresponsible activities to responsible ones (Kolstad, 2015).

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3.6.3 Impact strategy

Solution companies are providing technology and innovations to contribute to a more promising world for future generations, and it is believed that an increasing scale of companies will build their business models on their offering of solutions to solve the world’s environmental problems (Hart, 2015). Technological- and managerial innovations are creating substitutes for many nonrenewable sources, such as optical fiber replacing the copper wire, preventing pollution, such as issuing global standards for environmental management systems and enable development of cleaner technology (Hart, 2015). Emerging companies within related areas require fundings to be able to develop the aimed solutions. Issues are surfaced questioning short-term profitability for objectives with long- term investment horizons, such as the electrification industry (Levihn et al., 2011). Investments in solution companies are, therefore, in more extraordinary occurrence, a strategy of shareholders pursuing a long-term investment horizon (Starks et al., 2017).

3.6.4 Summary

Best-in-class Strategy This strategy emanates from choosing the best performing asset on the market in terms of ESG criteria. I.e., in a defined investment universe, the investment prospects with highest ESG score are weighted against each other.

Engagement and Voting Strategy A strategy entailing that the owners take a position in the company board, or acquire enough shares to influence voting processes of the company board. The goal with this strategy is to influence the behavior of the company.

ESG Integration Strategy Asset managers include ESG risks and opportunities into the financial analysis process. This focuses on how the ESG issues may impact company financials, and risks and opportunities are explicitly used in e.g., modelling cash flows financials (i.e., have an impact on the estimated numbers).

Exclusion Strategy Certain types of investments prospects are excluded from the investment selection process. This can be certain sectors, companies, or countries.

Criteria may include e.g., alcohol, tobacco, and weapon exposure.

Impact Investing Strategy A strategy with the aim to invest in companies and funds that have the intention to create a better world, e.g., by generating social and

environmental benefits with their organizational activities. The investments are commonly project-specific.

Norms-based Screening Strategy Potential investments are screened to evaluate their compliance with international ESG norms and standards. This includes e.g., the Principles of Responsible Investment framework as it is defined by the United Nations (UN).

Sustainability-themed Strategy Investments are made in specific themed investment opportunities related to sustainability, e.g., thematic funds, which focuses on a specific (or several) areas related to ESG, such as a circular economy or resource efficiency.

Table 1. Summary of Responsible Investment Strategies.

3.7 Sustainability reporting standards

Lack of standardized corporate data makes it hard to compare between different funds. There are, however, several incentives to try to standardize ESG corporate data but as of today there is no standardized approach (Ailman et al., 2017). However, there are some available guidelines for fund managers to follow.

Sustainable Investments

Sustainable Investments

Sustainability reporting from the institutional investors’ point of view

SOFIA BLOMSTRÖM SOFIE BOKFORS

Hållbara investeringar

Hållbarhetsrapportering från institutionella investerares perspektiv

av

Sofia Blomström Sofie Bokfors

Sustainable investments

Sustainability reporting from the institutional investors’ point of view

by

Sofia Blomström Sofie Bokfors

Hållbara investeringar

Sustainable investments

Table of Contents

1. Introduction

1.1 Problem Background

1.2 Purpose and Research Questions

1.3 Delimitations

1.4 Expected Contribution of the study

2. Preliminaries

2.1 Institutional Investors

2.2 The Sharpe Ratio

2.3 Corporate Social Responsibility

2.4 Funds

3. Literature review

3.1 History of sustainability reporting

3.2 Inside-out or Outside-In?

3.3 Agenda 2030 and the EU Taxonomy

3.4 Investments and ESG

3.5 Institutional Investors

3.6 Strategies for Sustainable investing

3.7 Sustainability reporting standards