Barriers for Responsible Investments:

Facilitating a Greener Economy-A Multiple Case Study of Asset Management Companies

Charlie Essland

Alexander Olausson

Industrial and Management Engineering, master's level

2018

Luleå University of Technology

Department of Business Administration, Technology and Social Sciences

ACKNOWLEDGEMENTS

This master thesis is the result of the final course in our master of science education at

Luleå University of Technology. It has been a learning and eye-opening experience

studying how asset management companies are working with responsible investments

and contribute with both theoretical and managerial implications.

We would like to thank our supervisor Jeaneth Johansson for the continuous feedback

and enthusiasm, as well our opposition group for precious feedback during each

seminar. Finally, we would like to thank all the people that took their time to

participate in interviews for this thesis.

Luleå, 30th of May

_________________________ _________________________ Charlie Essland Alexander Olausson

EXECUTIVE SUMMARY

Purpose – The purpose of this research is to develop and contribute with an improved

understanding of socially responsible investing and its barriers within the asset

management sector. To accomplish the purpose of this research, four areas have been

investigated; sustainability, business models, socially responsible investing, and

barriers for socially responsible investing.

Method – Since the research aimed to use the existing theory, and at the same time

explore and gain understanding within the area of sustainable, or responsible,

investments, the research approach had iterative characteristics with theoretical and

empirical findings. Therefore, an abductive research approach was chosen. For the

gathering of data, a multiple case study was conducted by interviewing people

working within asset management companies. For the analysis of the data, constant

comparison, multilevel interviews, and thematic analysis were used.

Results – First, the results indicate that socially responsible investments have greatly

affected the business models for asset management companies, and responsible

investments are starting to become more of a hygiene factor than a way of

differentiation. Second, the most significant barrier for the increase of responsible

investments is preconceptions and lack of knowledge. This barrier is rooted in an

underlying issue, that is lack of transparency regarding asset management companies’

investments. Furthermore, the findings indicate that government actions within the

market invested in, was not such a grand barrier as presented in the literature.

Theoretical contributions – The main theoretical contribution with this research is

the identification of the barrier preconceptions and lack of knowledge, as this is not

highlighted in the literature, but among the asset management companies it was highly

significant. By analyzing the findings with an institutional theory lens, it is an

understandable behavior as there are no incentives for change, hence the managerial

contributions consist of regulations.

Managerial contributions – The practical contributions with this report is the need

for reformed regulations in the industry where asset management companies are

operating, in order to increase transparency. By seeing the issue through the lens of

institutional theory, it is unlikely for self-regulations to happen as the incentives are

not great enough. For self-regulation to happen, the agency costs need to surpass the

costs for increased responsible investments, as it would generate enough incentives for

a change to happen.

Keywords: Sustainability; Socially Responsible Investing (SRI); Corporate Social

Responsibility (CSR); Sustainable Business Models (SBMs); Sustainable Banking.

TABLE OF CONTENT

1. INTRODUCTION .................................................................................................. 1

1.1 The Rise of Socially Responsible Investing ......................................................... 11.2 A Temporary Plateau for Socially Responsible Investing .................................... 31.3 Purpose of Research & Research Questions ......................................................... 41.4 Outline .................................................................................................................. 5

2. LITERATURE REVIEW ....................................................................................... 5

2.1 Evaluation of Sustainability .................................................................................. 52.2 Business Models of Asset Management Companies ............................................ 62.3 The increase of Socially Responsible Investing ................................................... 82.4 Barriers for Socially Responsible Investing ....................................................... 10

3. METHOD ............................................................................................................. 11

3.1 Research Approach ............................................................................................. 123.2 Data Collection ................................................................................................... 123.3 Data Analysis ...................................................................................................... 153.4 Quality Improvement Measures .......................................................................... 19

4. RESULTS ............................................................................................................. 20

4.1 Evolvement of Socially Responsible Investing .................................................. 204.2 The Need for Transparency ................................................................................ 234.3 Barriers for Socially Responsible Investing ....................................................... 274.4 A Framework for Increased Transparency ......................................................... 31

5. DISCUSSION & CONCLUSIONS ...................................................................... 34

5.1 Summary ............................................................................................................. 345.2 Theoretical Contributions ................................................................................... 355.3 Managerial Contributions ................................................................................... 365.4 Limitations & Further Research ......................................................................... 36

REFERENCES ............................................................................................................. 38

Appendix I: Interview guide second wave ....................................................................... I

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1. INTRODUCTION

In this section, the background for this research is presented along with the problem

discussion, purpose and research questions. Furthermore, the concepts of

sustainability, sustainable business models, corporate social responsibility and

socially responsible investing are briefly presented in relation to the topic.

1.1 The Rise of Socially Responsible Investing

Climate change is one of the most pressing concerns today (Linnenluecke, Smith, &

McKnight, 2016), and in order to mitigate climate change, companies need to consider

the environmental side effects when making economic decisions (Jeucken & Bouma,

1999; Rozenberg, Hallegatte, Perrissin-Fabert, & Hourcade, 2013). However, the

environmental side effects are not taken into account when those decisions are made,

as long as the environmental effects are not represented in the prices on which those

decisions are based (ibid.). The development of various industries has significantly

impacted the environment, and one type of company that has had a large indirect

influence is Asset Management Companies (AMCs) (Jeucken, 2010; Conley &

Williams, 2011; Bal, Faure, & Liu, 2014). AMCs play a crucial role in terms of which

projects and companies they choose to invest in (Bal et al., 2014). They have however

responded significantly slower than other sectors when it comes to sustainability

(Kaminker & Stewart, 2012), a stated reason for this is that it would interfere with

client's activities (Jeucken & Bouma, 1999; Kaminker & Stewart, 2012). For this

study, AMCs will be defined as companies investing other people's money in other

companies, AMCs can for example be banks, pension funds, hedge funds, and

independent fund companies.

With the increased focus on climate change, the business models of AMCs have been

forced to change during recent years, to improve their sustainability (Wu & Shen,

2013). A major reason for this has been the increased pressure from customers and the

surroundings, such as non-profit organizations and governments (Cornett, Erhemjamts,

& Tehranian, 2016). This has shaped the expression sustainable business models

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(Evans et al., 2017). Morioka, Bolis, Evans, and Carvalho (2017) explains the concept

as the following: "Sustainable business models can be seen as a construct to support

deploying corporate sustainability strategies into sustainable operations and

processes."

Studies have shown that the transition toward sustainable business models can have

several positive effects for companies (Ramnarain & Pillay, 2016; Yang, Evans,

Vladimirova, & Rana, 2017). AMCs that engage in Corporate Social Responsibility

(CSR) activities perform better than AMCs that does not work with CSR, in terms of

returns (Wu & Shen, 2013; Shen, Wu, Chen, & Fang, 2016). According to Saeidi,

Sofian, Saeidi, Saeidi, and Saaeidi (2015) improved reputation, customer satisfaction,

and competitive advantage are the main reasons why the return may increase when

participating in CSR activities. Hong, Cheong, and Rizal (2016) found similarly, that

sustainability has a direct influence on the economic success, and brings advantages

like differentiating from competitors, satisfying stakeholders, and improvement of

reputation.

In recent years the so-called Socially Responsible Investing (SRI) have flourished

(Sandberg & Nilsson, 2011; Nilsson, Jansson, Isberg, & Nordvall, 2014; Falcone,

Morone, & Sica, 2018), which has created a path for AMCs to take, in order to

improve their sustainable business models through CSR activities. SRI can be defined

as "the practice of integrating putatively ethical, social and/or environmental

considerations into a financial investment process" (Sandberg & Nilsson, 2011). Since

the environmental side effects are not taken into account in financial terms, as

mentioned above, using SRI criteria can therefore help when making investment

decisions, by adding the dimensions of environmental, social, and governance aspects

(Jeucken & Bouma, 1999; Rozenberg et al., 2013). The concept of SRI has gained

increased attention among companies (Nofsinger & Varma, 2014), and according to a

study of European countries, the environmentally conscious investments are expected

to grow over the years, both in volume and relevance (Ramiah, Gregoriou, von Müller,

& Brieger, 2016).

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1.2 A Temporary Plateau for Socially Responsible Investing

The environmental impact caused by the financial sector, like AMCs, can according to

Jeucken and Bouma (1999) be described as somewhere between two extreme points.

On the one side, since their products directly does not pollute, their clients are held

responsible for the pollution they create. On the other side, all pollution caused by

organizations which are financed by AMCs are therefore the financial sector's

responsibility. The latter is also supported by Ramnarain and Pillay (2016), stating that

AMCs are responsible for both the impact they have on the economy and society and

the impact of their customers. Jeucken and Bouma (1999) conclude that it would be

rather easy to estimate the environmental impact from the latter extreme point, it

would equal to almost the aggregate pollution in many countries. Looking at AMCs

from the latter extreme point displays what a significant impact they have and what the

results of their investing could lead to. This shows the importance of AMCs regarding

the transition toward a sustainable society.

Even if AMCs have changed their business models toward becoming more sustainable,

they still need to further develop them with regards to intangibles, like knowledge and

information (Chen, Danbolt, & Holland, 2014). However, AMCs often hesitate when it

comes to sustainable activities like SRI as regulatory changes and the long-term nature

of the investments potentially leads to high risks and low returns (Ghosh & Nanda,

2010; Kaminker & Stewart, 2012; Karltorp, 2016). In order to achieve a sustainable

economy, the size of the investments made toward this transition is an important factor

(Falcone et al., 2018). AMCs' allocation to environmentally friendly companies is

limited, especially when it comes to direct investments that could help close the

financing gap that exists for these types of companies (Kaminker & Stewart, 2012;

Finansinspektionen, 2016b).

Other stated reasons for the hesitation, beside the potentially high risk and low return,

are that they do not have proper information and expertise regarding this type

investments, and the inability to exit their investments at an appropriate time (Ghosh &

Nanda, 2010; Kaminker & Stewart, 2012). Kaminker and Stewart (2012) also point

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out that potentially unsupportive regulatory backdrops is a reason for this hesitation.

As a result of this uncertainty and hesitation, Erzurumlu and Erzurumlu (2013) argue

that the lack of capital is one of the main barriers that hinders the evolvement in the

environmental friendly sector. In order to facilitate SRI, reasons for the hesitation

among AMCs need to be understood and managed (Finansinspektionen, 2016b), as

this is one large barrier for the development of a sustainable society. With an increased

understanding of the barriers and how to manage them, the incentives for these

investments will be enhanced and responsible investments will prosper. This would

create a win-win as the AMCs can improve their SRI and further develop their

sustainable business models, and at the same time, sustainable organizations will gain

momentum.

1.3 Purpose of Research & Research Questions

The background combined with the problem discussion highlights the fact that AMCs

need to further improve their business models by including CSR activities, and a way

of doing this is through SRI. However, it seems like there are barriers hindering an

increase of SRI activities, hence makes it and an interesting gap of understanding to

fill. The purpose of this thesis will therefore be: to develop and contribute with an

improved understanding of SRI and its barriers within the asset management sector. In

order to accomplish the purpose of the research the following research questions have

been compiled:

RQ1: How and why has SRI affected the business models for asset management

companies?

RQ2: What are the barriers for an increase of socially responsible investing?

RQ3: How can these barriers be overcome?

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1.4 Outline

In order to answer these questions, existing literature on the subject will be examined

to extract valuable insights. Thereafter, interviews will be conducted, and the data will

be analyzed by applying a lens rooted in institutional theory (cf. Campbell, 2007).

Which, according to Brammer, Jackson, and Matten (2012) is an interesting lens to use

when investigating companies regarding CSR activities. The findings from the

literature will then be compared with empirical findings from interviews conducted

with various AMCs. This study will be relevant for both the asset management sector

as well as for regulators. Finally, this research will help facilitate the shift toward a

low-carbon society.

2. LITERATURE REVIEW

In this section, a review of the literature is presented. The literature review will lay the

foundation for the report and provide the knowledge needed for the selected area of

research. The literature review consists of four subsections; evaluation of

sustainability, business models in asset management companies, the increase of

socially responsible investing, and barriers for socially responsible investing. It starts

off with general sustainability and what it really means, then continues with how

business models are affected by the increased focus on sustainability. After this

socially responsible investing is investigated as this is an area where companies are

trying to improve their business models into more sustainable ones. Finally, the

barriers for socially responsible investing are presented, as these are different

compared to the regular investments that AMCs do.

2.1 Evaluation of Sustainability

The concept of sustainable development was first defined by the World Commision on

Environment and Development (1987) as "development that meets the needs of current

generations without compromising the ability of future generations to meet their own

needs". This broad definition has been somewhat more specified, and a commonly

used tool for evaluating sustainability within the financial industry is ESG, consisting

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of three central factors; environment, social, and governance (Wang & Sarkis, 2013;

Nofsinger & Varma, 2014; Cheng, Ioannou, & Serafeim, 2014; Finansinspektionen,

2016a; Finansinspektionen 2016b). The environmental pillar refers to factors such as

greenhouse gas emissions, usage of fossil fuels, renewable energy, and consumption of

water and energy. The social aspects include aspects like sexual harassments, child

labor, and animal welfare. Finally, the governance pillar includes measures like

shareholder rights, bribery and corruption, and annual report transparency.

According to Pope, Annandale, and Morrison-Saunders (2004), being able to measure

and determine how sustainable an organization is has become an important tool in

order to make the shift toward sustainability. Being able to evaluate the implications of

initiatives regarding sustainability is key, however, there are very few successful

examples of how to implement it (ibid.). An example is the AMCs, they have been

doing well when it comes to evaluating the financial performance of investments, but

the non-financial sustainable measures are according to Koellner, Weber, Fenchel, and

Scholz (2005) rather undeveloped. The authors continue by saying that due to their

lack of standards for evaluating investments in non-financial terms, they are not able to

account for these aspects, which is key if the asset management industry is to facilitate

sustainable development.

2.2 Business Models of Asset Management Companies

Traditionally, AMCs primarily used business models when they were competing with

their physical products, such as office space or ATM cards (Hong et al., 2016). This

has however changed during recent years and as of now, they rather compete on the

basis of services as it is harder to distinguish the products of different AMCs

(Bhardwaj & Malhotra, 2013). Chen et al. (2014) mention that the asset management

sector is an intellectually intensive sector, which means that the intangibles tend to be

extra important for the AMCs, and that this has facilitated the shift toward services.

The authors continue by saying that even if the AMCs' business models have changed,

there is still need for further development with regards to intangibles, such as

knowledge and information. By continuing to develop the business models, AMCs can

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increase their diversity, as business models with diversified income structure will

perform better on average, without being less stable (Mergaerts & Vander Vennet,

2016).

When it comes to sustainability in their business models, AMCs have been slow to

adapt (Kaminker & Stewart, 2012). However, during recent years the AMCs have

understood the importance of sustainability in their business models and moved

toward sustainable business models by starting to actively search for sustainable

investment opportunities (Bhardwaj & Malhotra, 2013). With sustainable business

models, companies choose to overlook any potential barriers, and rather focus on the

opportunities with sustainability (Belz & Binder, 2017). Actively searching for

opportunities to differentiate themselves with sustainability can improve their overall

business model (Morioka et al., 2017). The increased focus on sustainability is also

confirmed by Finansinspektionen (2016a), mentioning that most of the AMCs have

guidelines and prioritized goals when it comes to sustainability. However, only half of

the companies did quantify their goals, and the level of detail differed greatly between

different companies (ibid.).

The consequences of the slow adaption have been that the AMCs are not as trusted by

society as they were before (Ramnarain & Pillay, 2016), and Rogers (2013) even

stated that AMCs are among the least trusted organizations due to the lack of

sustainability in their business models. This makes it even more sensitive for the

AMCs to invest in unsustainable industries as it can cause reputational and legal

damages, which also is a contributing factor for the low trust (Case, 2012).

To manage these problems, AMCs try to differentiate themselves with CSR activities

to improve their reputation (Wu & Shen, 2013; Finansinspektionen, 2016a). By

performing CSR activities, the AMCs can improve their financial performance as well

(Koellner et al., 2005; Cornett et al., 2016; Hong et al., 2016; Shen et al., 2016). Gul

(2014) mentioned that there is a significant relationship between reputation, customer

satisfaction, trust, and customer loyalty. Cornett et al. (2016) continue by mentioning

that a high CSR score will have a positive effect on the AMCs' financial performance

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due to these factors. Similar, the study by Waddock and Graves (1997) which found

that an increase in CSR was associated with an increase of financial performance.

Shen et al. (2016) agrees with this and continues by saying that the AMCs should use

CSR as a long-term survival strategy.

However, studies have shown that the reasons for conducting CSR activities plays a

crucial role for the financial outcome (Wu & Shen, 2013). The authors continue by

mentioning that one motive for conducting CSR activities is so-called greenwashing.

By conducting greenwashing, companies try to enhance the corporate image without

making any significant changes in their business (ibid.). Furthermore, the authors state

that AMCs who perform CSR activities purely for reputational gains, like

greenwashing, will not see any improved brand differentiation or financial

improvements. Wu and Shen (2013) also mention that the reasons for doing CSR

activities were important, and it was when AMCs did the CSR activities for

themselves they could see the positive effects of it.

Although, Lai, Chiu, Yang, and Pai (2010) found that by just performing CSR

activities is not enough either, meaning that companies need to communicate their

activities to their customers, shareholders, and their surroundings in order to get

positive effects out of it. In order to reap the benefits of CSR, the area which these

activities are carried out is important as well (Finansinspektionen, 2016a). The study

found that the main area where customers are looking for sustainable options is within

asset management, such as sustainable funds which is a form of SRI.

2.3 The increase of Socially Responsible Investing

The interest in SRI has increased during the last years, and now more than ever AMCs

use SRI criteria when considering investments (Sandberg & Nilsson, 2011; Nilsson et

al., 2014). Nilsson et al. (2014) mentioned that in the US there has been an increase in

SRI assets from $2.7 trillion to $3.7 trillion, and from 260 SRI funds to 720 between

the years of 2007 and 2014. Falcone et al. (2018) share this view and continues by

mentioning that ethical investing and SRI movements is a large influencer for this shift

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toward sustainable development. Also, customers have requested products and

services with sustainable elements to a greater extent (Finansinspektionen, 2016a).

Falcone et al. (2018) continue by saying that AMCs have followed this trend by for

example using environmental rating and due diligence checks and environmentally

related counseling, and they predict that this positive trend will continue. According to

Cheng et al. (2014) and Wang and Sarkis (2013), this is where the ESG factors have

been incorporated, and some AMCs conduct an ESG-screening on an organization, or

an investment, before making the actual investment. The objects are evaluated based

on how they perform in regard to ESG factors, in order to determine how sustainable

the investment opportunity is.

Sandberg and Nilsson (2011) mention that there are primarily three different strategies

being used when conducting SRI; these are avoidance strategy, supportive strategy,

and shareholder activism. The most common strategy, avoidance strategy, is basically

avoiding investing in companies with poor ethical behavior (Sandberg & Nilsson,

2011; Finansinspektionen, 2016a). However, in most cases they still allow the

companies to have a certain share of their income from some unethical activities

(Sandberg & Nilsson, 2011). The second strategy, supportive strategy, is basically the

opposite to avoidance strategy, by only searching for positive ethical behavior and

investing in such companies (ibid.). The third strategy, shareholder activism, is

somewhat different from the other two strategies as it searches for unethical

companies, or companies in need of improvement, then use the shareholder influence

to pressure them toward becoming better regarding the ESG-ratings (ibid.). Down

below in Table 1, the three strategies are summarized.

Table 1. Explanation of the three common strategies of SRI.

Strategy Explanation

Avoidance strategy Avoiding investments in companies that are not performing well, regarding

ESG-ratings.

Supportive strategy Choosing to invest in companies that performs well, regarding ESG-ratings.

Shareholder activism Choosing to invest in companies that are in need for improvement regarding

ESG-ratings and use their shareholder influence to facilitate a change.

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When performing SRI, the return on investment (ROI) has been found to be the most

important factor when it comes to customer satisfaction (Nilsson et al., 2014;

Finansinspektionen, 2016a; Van Anh, 2017). There are authors arguing that there is no

evidence suggesting that SRI would perform worse financially compared to

conventional investments (Nilsson et al., 2014; Beal et al., 2017). They continue by

saying that SRI can help keep customer satisfaction up during a financial downturn.

However, this view is not unanimous among the participants in the industry, as

Finansinspektionen (2016a) mention, SRI will per definition limit the potential ROI as

it limits the number of companies to invest in, in other words decreasing the

investment universe.

2.4 Barriers for Socially Responsible Investing

The review of the literature has indicated that companies doing SRI have to manage

new barriers compared to their regular investments. The barrier with the most

significant impact, according to the literature, is government actions, and primarily

regulations within the market invested in (Hoffman, Trautmann, & Schneider, 2008;

Makower, Pernick, & Wilder, 2012; Mazzucato, 2013; Karltorp, 2016; Linnenluecke

et al., 2016). Sartorius (2008) even stated that unestablished regulations are the most

powerful barriers for AMCs when making SRI. The way that government creates these

barriers is that unestablished regulations create uncertainty in terms of actions and

reliefs that might hinder or facilitate the growth of specific industries, or markets. The

uncertainty in terms of lack of information and expertise, and the risk of potentially

unsupportive regulations has resulted in lack of investments (Kaminker & Stewart,

2012).

Another way government actions can affect AMCs is with the velocity of the

regulatory changes, as regulations and policies regarding sustainability often are

replaced rather quickly (Erzurumlu & Erzurumlu, 2013). This increases the uncertainty

further because AMCs might not want to commit to regulations if there are reasons to

believe that regulations might change soon again (ibid.). Also, Kaminker and Stewart

(2012) explain that the AMCs are not used to managing this type of regulations and

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policies risk, which reinforces the barrier even further. The fast pace of regulatory

changes is also unsuitable for SRI since they often involve investments over a longer

period of time, compared to regular investments (Miller & Hope, 2000). This implies

that the periodicity of regulatory cycles will be shorter than the actual investment cycle

(Ghosh & Nanda, 2010), leading to more uncertainty when considering these

investments. Since SRI is seen as a long-term investment, it creates a mismatch with

the AMCs' investment strategies (Kaminker & Stewart, 2012).

As mentioned above, another barrier for SRI is that they have a long-term timeframe

(Kaminker & Stewart, 2012; Wang & Zhi, 2016). This barrier exists due to the fact

that AMCs usually have short-term performance objectives that prevent them from

investing in long-term assets and thereby leading to inefficient allocation of their

capital (Kaminker & Stewart, 2012). To avoid the long-term timeframe companies

often search for projects where it is possible to restructure the investments, making it

possible to refinance earlier and avoid locking in investors over a long period of time

(Blyth, McCarthy, & Gross, 2015; Karltorp, 2016; Finansinspektionen, 2016b).

The conditions of the market are also an important part when predicting the outcome

of SRI (Sine, Haveman, & Tolbert, 2005; Hansen, Grosse-Dunker, & Reichwald 2009;

Kalamova, Kaminker, & Johnstone, 2011). Newell and Paterson (2009) explains that

investors search for projects that are transparent, and they found that it was important

that the projects they financed disclosed their emissions and actively tried to reduce

them.

3. METHOD

In this section, the method for the research is presented, consisting of four

subsections; research approach, data collection, data analysis, and quality

improvement measures. This section explains what approach was taken, how the data

was collected and analyzed, and what quality improvement measures were taken.

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3.1 Research Approach

Since this research aimed to answer "how" and "why" SRI has affected the business

models for AMCs and what the barriers for SRI are, the research approach contained

explorative characteristics (cf. David & Sutton, 2016), with an iterative process

between theoretical and empirical findings. Therefore, an abductive approach was

chosen, in order to discover new factors, and at the same time build upon existing

theories with empirical findings (cf. Dubois & Gadde, 2002).

For this research, a multiple case study was conducted in order collect primary data

(cf. Yin, 1994). To improve understanding of the "how" and "why" by conducting

interviews and gathering data in the form of words, reflects a qualitative approach (cf.

Eisenhardt, 1989b). Qualitative research has been criticized for having quite thin

evidence to support the theories (cf. Gioia, Corley, & Hamilton, 2012), therefore this

research has been conducted on the basis of scientific articles, which were presented in

the literature review.

3.2 Data Collection

The data was collected from three main sources; scientific articles, government

reports, and interviews. By collecting data from several sources, it was possible to

triangulate the data and improve the reliability of the data (cf. Saunders, Lewis, &

Thornhill, 2009). Also, the interviews were conducted with respondents from different

levels within the companies in order the get an overall view of the subject.

3.2.1 Literature Review

The initial process started with scanning the existing literature to identify areas of

interest regarding sustainability in the asset management industry. To find relevant

literature on the subject, articles and conference papers were searched for within the

database Scopus. Keywords used during the search were: "Sustainable Business

Models", "Corporate Social Responsibility", "Barriers for Socially Responsible

Investing", "Socially Responsible Investing", "ESG", "Green Investments",

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"Sustainable Banking", and "Environmentally Friendly Investments". The keywords

were searched for both in combination with other keywords and separately. In order to

sort out the results, the operator most cited first was used. The first step when finding a

paper was to read the abstract, and if it was interesting the results were also read. If the

paper still was relevant, the whole paper was read. To further find relevant papers,

snowball sampling was used, by searching the reference lists of relevant articles.

3.2.2 Interviews

For this research, interviews were the source of primary data. In total, 19 interviews

were held, lasting between 20 and 60 minutes. In order to make sure that all

information from the interviews was collected, the interviews were first recorded so

that a complete transcription could be conducted afterwards. To protect the

interviewees' interests and ensure that they shared as much as they could, all

interviews were anonymized (cf. David & Sutton, 2016). For the selection of

interviewees, snowball sampling was used (ibid.), starting with the research group's

contact at Danske Bank, who had a lot of experience in the area. The same method of

sampling was used during the subsequent interviews, that is, asking them which

people/companies they believe would be beneficial to include in this research and

why. The interviews were conducted in three waves, in order to avoid information

gaps.

First wave

In the first wave an exploratory interview technique was used (cf. Leech &

Onwuegbuzie, 2008), which was useful to get an overview of the subject, and also to

better understand their point of view as exploratory interviews opened up for

discussion (cf. Saunders et al., 2009). The basis for the discussion was taken from the

literature review in order to point the respondents toward areas of interest for the

research. In total four interviews of this kind were conducted. The contribution from

the first wave interviews was a broader understanding of the subject, and also a

revision of the interview guide for the second wave interviews.

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Second wave

In the second wave, the interviews were conducted in a semi-structured way (cf.

Saunders et al., 2009), opening for discussion and allowing the interviewees to share

about both previous as well as current experiences on the topic (cf. Gioia et al., 2012).

The basis for the interviews in the second wave was the interview guide presented in

Appendix 1. The aim with the second wave interview was to get a deeper

understanding of the questions raised during the first wave. Even if the interview guide

was almost the same for all second wave interview, the focus shifted a bit due to the

respondent's expertise in different areas. In total twelve interviews were conducted

with respondents from various levels during the second wave.

Third wave

The purpose of the third wave was to fill the gaps from the previous waves, in other

words, they were conducted as confirmation interviews (cf. Leech & Onwuegbuzie,

2008). The respondents for these interviews were chosen based on their expertise area,

and in total three interviews were conducted in this wave. For all the interviews and

the companies, see Table 2 and Table 3 below.

Table 2. List of interviewees.

Interview Date Position Duration

Wave 1: Exploratory interviews

1 2018-02-26 ESG Analyst 45 min

2 2018-02-28 Head of Sustainability 55 min

3 2018-03-01 Senior Product Manager 60 min

4 2018-03-01 Head of Sustainability 45 min

Wave 2: Semi-structured interviews

5 2018-03-01 Sustainability Manager 55 min

6 2018-03-02 Head of Asset Management 30 min

7 2018-03-06 Business Developer 45 min

8 2018-03-06 Head of ESG 55 min

9 2018-03-07 Head of Risk Management 55 min

10 2018-03-08 Head of Responsible Investments 55 min

11 2018-03-12 Head of Fixed Income 35 min

12 2018-03-13 Head of Institutional Clients 45 min

15

13 2018-03-13 Advisor 35 min

14 2018-03-21 Senior Advisor 45 min

15 2018-03-26 Head of Institutional Clients 50 min

16 2018-03-27 Board of Directors 30 min

Wave 3: Confirmation interviews

17 2018-04-03 Head of ESG 20 min

18 2018-04-09 Head of Sustainability 20 min

19 2018-04-17 Head of Responsible Investments 25 min

Table 3. List of companies participated in this research.

Companies interviewed Alecta

AMF

Danske Bank

Erik Penser Bank

Finansinspektionen

Handelsbanken

Lynx Hedge Fund

SEB

Spiltan Fonder

Storebrand

Swesif

Söderberg & Partners

Öhman Fonder

3.3 Data Analysis

To interpret the data constant comparison was used (cf. Merriam, 2006), and by

constantly analyzing the data it was possible to adjust and improve the interviews

along the way. Also, multilevel interviews were conducted (cf. Veryzer, 1998), in

order to get different points of view within the different firms. The method used for

analyzing the data from the interviews was thematic analysis (cf. Braun & Clarke,

16

2006; cf. Yin, 2014). The purpose of using thematic analysis is to find patterns and

themes from the collected data.

Braun and Clarke (2006) have found several advantages of using thematic analysis for

qualitative research; including flexibility in terms of a large amount of data gathered,

generation of unanticipated insights, summarizing key features of large amounts of

data, and the ability to highlight similarities and differences. However, the authors also

mention that the flexibility can become a disadvantage, in terms of deciding what part

of the data to focus on. Another limitation with the thematic analysis is that the method

has limited interpretive power if not used in a theoretical framework (ibid.) To cope

with these limitations, the research group decided to use the theoretic frame of

reference as the foundation for what aspects to focus on.

The process for conducting a thematic analysis consists of six phases presented by

Braun and Clarke (2006) and was performed as an iterative process that is described in

Figure 1 below:

Figure 1. The data analysis process.

17

Familiarizing with the data

After the interviews were conducted, the recordings were used for making a complete

transcription of the interviews. By having all interviews recorded, the risk of missing

anything mentioned in the interviews were reduced, thereby obtaining accurate

transcriptions. Thereafter, the process of becoming familiar with the data continued by

reading through all the transcriptions carefully and highlighting possibly important

parts (cf. Braun & Clarke, 2006).

Initial coding

After going over the transcriptions once more, all highlighted parts of the

transcriptions were then coded into as many different patterns as possible. This was

done because some patterns that may not seem interesting or relevant at the beginning,

could possibly become interesting in a latter phase of the research (cf. Braun & Clarke,

2006). During the course of initial coding, the patterns were later refined by combining

some of them, but also adding and splitting up some of the codes.

Theme searching

In this phase, the codes retrieved from the transcriptions were then grouped in

overarching themes. For this phase, the different codes were placed on a thematic map

in order to get a clear visual representation of how the codes are related to the different

themes (cf. Braun & Clarke, 2006). In this phase, there were initially 10 themes

identified.

Reviewing themes

After having a set of initial themes, the process of refining these themes began. This

phase consisted of reading through the coded extracts once again to determine whether

the pattern permeates through the data extracts within each theme. Furthermore, some

modification was required in terms of changing themes for some of the extracts.

Thereafter, the data was read again to make sure that the extracts were representative

within each theme and that the themes worked in relation each other.

18

Defining and naming themes

In this phase, some of the data within the themes were grouped into sub-themes, and

the themes were refined in terms of relation to the research questions. Also, an

accurate description of each theme was compiled along with the appropriate naming of

the different themes.

Producing the report

The final phase of the thematic analysis consisted of compiling the analysis of the

themes, both in a combination of the other themes and separately. This analysis was

put in context to the research questions and a lens rooted in institutional theory was

also used, to help answer the research questions: "How and why has SRI affected

business models for asset management companies?", "What are the barriers for an

increase of socially responsible investing?", and "How can these barriers be

overcome?"

The thematic map is constructed in a way where the boxes on the left are the initial

findings (initial codes), these were the foundation of the whole structure of the results

section. The boxes in the middle are the main content under each headline (initial

themes). Finally, the boxes to the right are the main headlines in the results section

(reviewed themes). The initial codes helped construct the initial themes which helped

construct the reviewed themes. Hence, Figure 2 should be "read" from left to right in

order to understand the construction of the results section. The final version of the

thematic map can be seen below in Figure 2.

19

Figure 2. Final version of the thematic map.

3.4 Quality Improvement Measures

In order to increase the understanding of the topic and the reliability of the data

acquired, triangulation was conducted by gathering data from multiple sources (cf.

Langemar, 2008; cf. David & Sutton, 2016). In this case from scientific articles,

government documentation, and interviews with workers active in AMCs. By using

multiple sources of information, theories were either confirmed by finding similarities

among the different sources, or refuted by not sharing the same view or agreeing with

the findings.

For the selection of interviewees, snowball sampling was used, making it possible to

find respondents with relevant experience for the questions in mind. However, this

might have had a negative effect on the credibility as some of the respondents may

have known each other, and it could, therefore, affect their answers. To minimize the

negative effect, the respondent who recommended another person for the interview

had to motivate why this person was a good fit for answering the questions in mind.

For the selection process, respondents from different levels and within different

20

companies were chosen, as this would increase the transferability as it makes the

answer general in the industry as well as within the companies.

To further improve the credibility of the report, the method section thoroughly

explains each step of the sampling and the analysis process of the data. Also, the three

wave interview technique was used in order to reduce information gaps. The

respondents also had the possibility to contact the research group afterwards, if there

was anything they wanted to share, or if they did not think they were clear enough in

their answers.

Finally, in the essence of this research, the research group also decided not to travel

when conducting the interviews. Instead, all interviews were conducted over the phone

or using Skype in order to minimize the research group's environmental footprint. This

could however affect the follow-up questions as it became more difficult to read and

interpret the interviewed person. But on the other hand, traveling for each interview

would decrease the overall credibility of the report due to the environmental footprint

it would create.

4. RESULTS

In this section, the results of this study are presented. This section consists of four

areas; evolvement of socially responsible investing, the need for transparency,

barriers for socially responsible investing, and a framework for increased

transparency. The layout of each subsection consists of empirical findings, followed by

its relation to theory, and lastly the analysis.

4.1 Evolvement of Socially Responsible Investing

The empirical findings have shown that there has been a shift among AMCs to

facilitate sustainability. From not having any concerns regarding sustainability, to

having changed their daily work tasks. This is confirmed by all the respondents, and

one respondent expresses it this way:

21

"Ten to 15 years ago, we did not talk about sustainability. Nowadays,

sustainability is a part of the everyday life here at the office and we

constantly need to find new ways of differentiating ourselves with

sustainability."

This is in line with the theory as, Kaminker and Stewart (2012) mentioned that AMCs

have been slow in the adaption regarding sustainability, and only recently shifted their

focus toward it. Also, Bhardwaj and Malhotra (2013) said that during recent years,

AMCs have understood the importance of sustainability in their business models. This

has led to an increase of CSR activities and sustainable business models as they started

to actively search for environmentally friendly investment opportunities. A respondent

explains this change the following way:

"It all started with the churches, and this was many years ago, they did not

want their money to be invested in unethical industries such as

pornography or tobacco. Later the municipalities started making the same

requests due to political forces, and nowadays I do not believe we have a

single institutional customer who do not demand certain restrictions in the

investment universe."

During the last few years, the media have also taken notice in sustainability when it

comes to investments. This has affected private customers who are pressing AMCs

when it comes to sustainability in their investments. This is also confirmed by

Finansinspektionen (2016a), and Falcone et al. (2018) who also mentioned that this

positive trend will probably continue as well. A respondent formulated this the

following way:

"We have seen a tremendous increase in pressure from the surroundings

when it comes to our sustainability screening and investment decisions. I

believe that this pressure will continue, maybe even increase and that

sustainable investments will be a hygiene factor rather than a

differentiation factor."

22

As seen, the change has always been driven by outside factors, which is in line with

the institutional theory (cf. Campbell, 2007). Also, Brammer et al. (2012) argue that

external pressure, such as NGOs is a driver for change toward CSR activities. The

author also argues that collective self-regulation is a driver. However, this does not

seem to be the case for AMCs.

When it comes to the screening process, companies have traditionally exclusively used

negative screening when performing SRI, mostly because it was rather time efficient

and that it was easy to prove to their customers. That is however not the only way to

work with SRI, and one respondent described the issues with solely using negative

screening the following way:

"It is quite easy to exclude certain things, such as weapons. The problem is

that you do not show how you contribute to the future, you only show what

you avoid investing in. And what about the indirect effect of the

investments? For example, a lot of the AMCs invest in hedge funds, and the

hedge funds invest "indirectly" in derivatives without any restrictions. In my

opinion, this shows the weakness of negative screening. I rather prefer

investments where the investing companies uses their power to change the

company to something better, instead of just showing off the things they "do

not" do."

Due to the issues with negative screening, companies have moved toward using

positive screening and shareholder activism to a larger extent. The new focus has been

happily welcomed by several actors in the industry, especially by the ones at the

sustainability departments. However, the strategy with the most potential effect,

shareholder activism, still faces problems. One respondent describes the problem for

small AMCs the following way:

"We are a small actor with relatively small investments in each company.

Let us say that we invest 5-10 million in a company, this might be worth 1

percent of their stocks, with 1 percent ownership they will not listen to us.

To be able to make a difference, we need to cooperate with other investors."

23

This shows that even if they want to make a difference, it is hard due to their size.

Also, larger companies, that can make a difference, might not see shareholder activism

as a part of their job as it is rather time consuming. This is described by a respondent

working in a large company:

"To actively work and try to affect the companies we invest in would

require too much from us, and we simply do not have enough manpower.

Instead, we focus on negative screening to avoid unethical companies."

As said before, it is easier to state what you choose not to invest in rather than make a

difference with the investment. Shareholder activism requires greater manpower and is

related to increased costs and at present and the positive effects of it might not pay off.

Something that would force the AMCs to move toward shareholder activism is

increased pressure from the institutional customers. Traditionally, institutional

customers were one of the first to press AMCs toward exclusion of certain companies

(negative screening). The institutional customers can affect AMCs due to their large

investments, and it would be rather easy for them to push companies in the right

direction. A second solution could be for the regulators to facilitate this move toward

shareholder activism. At present, there are regulations forcing companies to present

how they work with sustainability in their annual report. A way to develop this

regulation would be to also include that they need to present what actual difference

their investments do, and by this forcing AMCs to move toward shareholder activism.

4.2 The Need for Transparency

Sustainability is not a word that everyone defines the same way. In fact, no one of the

respondents had the exact same definition of sustainability in their investments. The

definition coined in the Brundtland report was mentioned several times and was often

a part of their view of sustainability, but that was never their only point of view on

what sustainability is. The fuzziness of sustainability is, in fact, a problem for AMCs

as it makes it difficult to decide what is relevant for the situation. Down below are two

quotes that highlights this problem:

24

"It is not the measurements itself that is the hard part, it is to know what

measurements are relevant for this particular product."

"I can measure a whole bunch of stuff, for example the !"# emissions from

a company that manufactures cluster bombs, but that would not be that

relevant, right? This is the hard part."

This is in line with Pope et al. (2004) who highlighted the importance and the

difficulties with sustainability measures, and that there are few successful examples of

it. The fuzzy nature of sustainability leads to the questions regarding greenwashing,

and if companies use the fuzzy definition to their own advantage in order to market

themselves. However, regarding greenwashing the opinions were divided on whether

that still exists among AMCs. Most of the respondents believe that some companies

are still doing greenwashing to a certain degree, but like the definition of

sustainability, it can be difficult to determine, in this case, what greenwashing is.

Down below are two examples showing the differences in opinion:

"I do not believe that there is any greenwashing at present, companies that

used to greenwash took too much risk, and it ended up hurting them. It is so

easy for the media and NGOs to see through these tricks nowadays."

"I am 100 percent sure that there is a lot of greenwashing going on in the

industry. This makes me frustrated as it hurt companies like us, who really

tries to do the right thing. I believe that this is one problem that hinders the

evolvement of greener finance in our industry."

An example of potential greenwashing that was given by one of the respondents:

"A Swedish small company fund claims that they are incorporating

responsible investing by not making direct investments in coal. Well, this

sounds good, at least for the average individual. But in reality, a small

company fund cannot even make direct investments in coal since there are

no small companies in Sweden that are mining coal."

25

This can be considered greenwashing since it is not a relevant aspect to communicate

when there is no possibility to make such investments, as it is not in their investment

universe. Another AMC, who was questioned regarding the "investment in coal"

example, explained why this would not be greenwashing, described it the following

way:

"It might be since quite a few are aware that small company funds cannot

invest in coal, but a lot of AMCs are being pressed to be extra clear with

their standpoint, and therefore expressing themselves like that to avoid

negative effects and misconceptions."

This implies that there is an uncertainty regarding what is greenwashing and what is

not greenwashing. Another example of what could be seen as greenwashing is the

following:

"Banks often say that they do not make direct investments in unethical

industries. But what about the indirect investment? For example, banks

invest in funds that use derivatives without restrictions, thereby investing

indirectly through the derivatives."

This is a difficult area, because how far should you analyze your indirect effect? Some

of the respondents say that they should analyze the first level effects, for example

suppliers to unethical industries. Some said that they analyze on the second level

effects of the investment as well, but at this point it gets harder as the line for good and

bad is blurred this far away from the investment. A respondent explains this problem

the following way:

"If I invest in a company, and that company help build cluster bombs, that

is rather easy for me to find out, and it is an easy decision to not invest in

the company since that would be considered helping an unethical company.

But if we take it one step further it gets harder to draw the line, and for

every level, the investment universe gets thinner. If we take it to the

extreme, then my investment universe becomes close to non-existing."

26

To solve this, a lot of the respondents said that they used a certain percentage of the

revenue, some said if a company had less than five percent of the first level revenue

from an unethical business, then it was okay to invest in them. By using the revenue

measure, it is possible to quantify the "line" which the respondents preferred. Still,

there is a thin line between the right investment and the wrong investment which might

cause reputational damage, and the AMCs a highly aware of this. One respondent

mentioned the following:

"It takes years of work to build up image and reputation, which can be lost

within hours if we get caught doing greenwashing."

By performing greenwashing AMCs are taking a large risk, and they must handle their

relations with care. Since the financial crisis this is extra important, as the customers

lost a lot of trust in AMCs after that. This is highlighted by one respondent who said

the following:

"After the crisis the industry took a huge hit, no one trusted us anymore.

Since then we have had to work really hard to get our reputation back, and

I still believe that there is a long way to go before we get back to the same

levels as before the crisis."

This is in line with the theory as AMCs were described as one of the least trusted

organizations (Ramnarain & Pillay, 2016; Rogers, 2013), and Case (2012) mention

that it is sensitive for AMCs to invest in unsustainable industries as it can cause

reputational and legal damages. However, it will be almost impossible to generalize

what to measure as most of the industries are too different. For example, on respondent

said the following:

"Let's say you have an industry processing metal, they should probably

focus on energy consumption, waste, and pollution, rather than cutting

down on their paper use."

If this on the other hand was a paper producing company, the paper use would be a

highly relevant area to focus on. Due to the thin line between the right and wrong

27

investment, the screening combined with the marketing activities are important tasks.

The main issue lies in the uncertainty regarding what is relevant to measure and

communicate. A possible explanation for the issue with greenwashing, or borderline

greenwashing is, as mentioned, that the AMCs just want to be extra clear. However, if

that was the case, these borderline greenwashing statements should always come with

an explanation of why they for example do not invest in specific industries. Best case

scenario would be for AMCs to produce guidelines for each industry. This would

reduce the uncertainties regarding greenwashing, and it would also increase the

transparency regarding their marketing activities. This is on the other seen as a highly

improbable solution as it would require too much work. A more probable solution

would be for the government to implement a stricter inspection of AMCs marketing

activities.

4.3 Barriers for Socially Responsible Investing

As AMCs invest other peoples' money in companies, the industry is highly focused on

ROI. In the beginning, when SRI gained focus, it was said to lower the ROI. The

reason for this was that a change toward SRI would require significant investments in

new staff, more training, and restructuring of the investment processes. All of this was

true at the time, but at present when all these investments have already been made,

other arguments are used instead. The main argument is that you will limit the

investment universe, this is also highlighted by Finansinspektionen (2016a), and it is

hard to argue against this, as it is per definition true. A respondent describes how the

investment universe might affect the investment the following way:

"Let us say that we have two different funds, one using ESG-screening and

the other one is without restrictions. If the economy is going down, most of

the companies will follow the economy. However, there are some industries

that do not feel the same effects of a downturn. For example, the betting

industry will probably have an equal demand even if the economy is going

down. The fund with ESG-screening is probably not allowed to invest in

betting companies while the regular fund is. This shows how the limitations

28

might affect the return on investment. It is worth mentioning that this is

during a short period of time, in the long run, this might not be the case."

This shows when SRI might perform worse than a regular investment, and most of the

respondents agreed that SRI might perform worse during a short period of time. But in

the long run, SRI will perform better than the regular investment. So, instead of

arguing against the potential loss of return, they often choose to see it from another

perspective. Instead of looking at the limiting factor, they see SRI as a more solid

analysis, for better investment decisions. By using sustainability as an extra factor

when conducting the analysis of a company, the overall analysis will be more

extensive. Down below are two examples from two different respondents about this:

"I do not see exclusion as a limitation for me, I rather see it as a more

extensive analysis of the company. Even if I would not have to exclude

certain companies, I would still do it. I believe that these companies will

have a hard time competing in the future, and by using ESG criteria I can

avoid them and get a portfolio with lower risk and higher return. Let us talk

about the oil industry, they will not be able to extract oil forever, the earth

will eventually run out of oil, and the closer it gets the harder it will be for

these companies to survive."

"In the financial market, we need to focus more on the long-term, and not

put such a heavy emphasis on the next quarterly financial report. Take the

tobacco industry, they perform relatively well even in a recession, so short-

term this can be a better investment, but what if in ten years when they have

found a solution for tobacco addiction. Then I would not want to be having

investments in tobacco companies. This is the reason why I believe that

responsible investments will have a greater return on investment than the

regular investments, even if the regular investment might be a "better"

choice in the short run."

During the collection of data, this was the view most of the investors had. Most of

them argued that the reason for the belief that ROI will be lower with SRI compared to

29

regular investments, is lack of knowledge. They mean that people who believe this

either do not know what SRI is, or they simply do not want to change from the

traditional way of working. This view is also presented in the literature, where some

authors argue that there is no evidence suggesting that SRI should perform worse than

traditional investments (Nilsson et al., 2014; Beal et al., 2017). It was also mentioned

during the interviews by several employees higher up in the hierarchy, who have been

in the industry for quite some time. They are often not that willing to change the way

they have worked for the past 20-30 years, and often are unwilling to get training in

SRI.

To facilitate SRI, a shift from solely negative screening toward positive screening and

shareholder activism needs to be taken. It is through shareholder activism most

changes will happen as this strategy does not just avoiding poor investments, but

instead focusing on making a difference. We do not believe that this change will

happen by itself. The reason for this is a lot due to lack of knowledge from the

customers. The customers do not know the difference between negative screening and

shareholder activism. The previous example with the Swedish small company fund

explains that most people do not know that a Swedish small company fund cannot

directly invest in coal, and they get impressed and believe it is a good investment

opportunity when the fund say that they avoid direct investments in coal. One way of

solving this and facilitate shareholder activism can be through media. The media has a

large influence on the people and have during recent years been one of the lead

influencers for sustainable investments. If the media would increase their pressure and

focus on the positive effects of shareholder activism changes would probably occur.

However, this is not likely to happen due to the lack of transparency in AMCs, making

it difficult to understand the effects of their investments.

Another issue with SRI is the possibility of regulations in the invested market, as it

increases the uncertainty. Certain reliefs or restrictions can be the difference between a

successful or an unsuccessful investment. To cope with this, AMCs tries to evaluate

the possibilities of regulatory actions that will affect their investment. However, as this

30

is a rather new challenge for AMCs, it is difficult for them to make an accurate

evaluation. One respondent expressed their thoughts on the subject as the following:

"Take the automotive industry, it is very problematic to evaluate regulatory

risks. What will happen with diesel cars? Will there be tax reliefs for

electric cars? We are not used to working with these potential changes in

regulations."

From the literature, the barrier that was expected to be the most significant one was

government actions, like regulations in the invested market (e.g. Hoffmann et al.,

2008; Kaminker & Stewart, 2012). However, regulations in the invested market might

not facilitate SRI enough. The empirical findings indicate that AMCs are not willing to

change without any pressure. This means that regulations directly on the industry

where AMCs operate would have a more positive effect. On the other side, this would

not be welcomed by the AMCs, as they rather prefer self-regulations within the

industry. We do not believe in self-regulation as it is seen to cause a catch-22 scenario.

All the AMCs mention that the environment is a problem and that something needs to

happen. However, they are not prepared to change before anyone else does. The area

where regulatory actions are needed the most, is to increase transparency regarding

AMCs' investments. Currently, the transparency is low, and this is the underlying

reason why there is not more pressure from customers. Customers does simply not

have the knowledge to understand the reporting of the investments made by the

AMCs, and they also do not understand what factors that are relevant for a certain

investment.

Another issue SRI faces are the idea that it has longer investment cycles, this is

sometimes true according to the interview candidates, specifically when working with

shareholder activism. As shareholder activism focuses on changing the way a company

act, it might take time before they actually see results from the change. However, there

are still possibilities that the companies who are being affected by the investors, to

conduct a more responsible business, can perform well during this transaction period.

Another time when SRI might require longer timeframe is during down periods of the

31

market. As mentioned in the example with the betting company earlier. If the market

goes down, SRI might be more affected by the downturn and due to this, must hold on

to the investment for a longer time. On the other side, some of the respondents argue

that the reason for the downturn is important to consider, as an SRI might perform

better than the average investment during certain events, an example from a

respondent is the following:

"Take for example investments in certain areas in Africa, access to water

might be critical, and some industries are dependent on this access in order

to operate. What if the water supply dries out? Then they have to shut

down. If I took the water consumption in to consideration during my ESG-

screening, then I would not have invested in those companies, and avoided

the negative effects it will cause."

This is a good example that proves that the reason for the downturn is important to

consider. This also shows both the "good" and the "bad" side of SRI regarding

timeframe of the investment. With the probability of longer timeframe, it is

understandable why some AMCs might avoid SRI, as Kaminker and Stewart (2012)

mentioned that long-term investments creates a mismatch with the AMCs' short-term

performance objectives. So, the timeframe for SRI might be longer, but not always.

One side argue that there are restrictions which cause longer timeframe, the other side

argue that SRI is an extensive analysis which makes it possible to avoid downturns and

longer timeframe. If both sides are correct, the side arguing against SRI would still

benefit from SRI to a limited extent as they can avoid the example with the water

supply, and still not being restricted in their investment decisions.

4.4 A Framework for Increased Transparency

From our point of view, the underlying and most important issue to manage is the lack

of transparency regarding AMCs investments. This results in AMCs finding it hard to

determine what is sustainable and not, and what is relevant to measure and

communicate. Furthermore, based on the empirical findings, the barriers

32

preconceptions and lack of knowledge, government actions, and project & market

conditions are rooted in the lack of transparency. Therefore, we believe that addressing

the transparency issue would facilitate responsible investments among AMCs. We

argue that there are three possible solutions that would increase the transparency, and

these are; self-regulation, external pressure, and reform of regulations. The framework

is presented down below and summarizes the different solutions and their possible

effects.

Figure 3. Framework for increased transparency among AMCs.

Self-regulation

One solution would be for the AMCs to self-regulate, meaning that the industry itself

would create a standard where they are transparent with their investments, the effect of

it, what measures are relevant for different industries, and the difference they actually

make with their investments. This would limit both the uncertainties regarding

measurement as well as the greenwashing by forcing them to only use relevant

measurements when marketing their investments. However, based on historical

changes toward SRI (Brammer et al., 2012), and the empirical findings, this is unlikely

33

to happen. We believe that more incentives are needed for self-regulation to happen as

historically, external pressure such as institutions and other customers has forced

AMCs to change (ibid.). Also, based on the empirical findings, the internal driving

forces of the AMCs might not be sufficient enough for a change. There is still

however, a slight chance for self-regulation to happen, and we argue that this is more

likely to occur if the AMCs would understand the potential cost for not being

transparent. For example, loss of reputation and loss of customers is not an unlikely

outcome since responsible investments is starting to become more of a hygiene factor.

The potential for a loss of reputation and customers will increase the agency costs for

the AMCs (cf. Eisenhardt, 1989a), in terms of lost opportunity. But as long as the cost

of increased SRI is higher than the agency costs, there will not be enough incentives

for change to happen.

External pressure

As mentioned above, historically, external pressure forced the AMCs to change their

strategies toward SRI (Brammer et al., 2012). However, this time we do not believe

the same thing will happen, due to preconceptions and lack of knowledge. Due to the

fuzzy nature of sustainability, AMCs have a hard time or are unwilling to measure

relevant factors of their investments. One reason for this is that it seems to be difficult

to really know what to measure, another is that it might require more work. Instead of

stating what they contribute with their investments, AMCs often market themselves

with what they avoid (Sandberg & Nilsson, 2011), which is often formulated in a way

which sounds great for an untrained ear. The average individual does not have the

knowledge to distinguish between relevant and irrelevant measurements. This makes it

unlikely for them to pressure the AMCs, as they do not have the proper knowledge

within this area to begin with.

Reform of regulations

The third solution for increased transparency would be for the regulators to step in,

this is also the solution which we believe is necessary. The regulators can do this in

several different ways, for example build upon the existing regulations regarding

34

AMCs’ display of their sustainability work in their annual reports. A reform of current

regulations could be that they also need to display how they contribute in regards to

the ESG pillars with their investments, this would force them to become more

transparent. Another regulation could be a marketing restriction of irrelevant

measurements for investments. This would for example prevent a Swedish small

company fund to say that they do not make direct investments in coal mining, as it is

irrelevant since it is impossible. Regulations like such would force AMCs to display

how they actually work with sustainability and increase the transparency. The effect of

this would be an improved understanding for the average person, which in turn will

increase the pressure from them as well. Finally, this could lead to a chain effect where

AMCs continue to self-regulate in order to stay competitive on the market.

5. DISCUSSION & CONCLUSIONS

In this section, the discussion and conclusions of this research are presented. This

section consists of four areas; summary, theoretical contributions, managerial

contributions, and lastly limitations and further research.

5.1 Summary

By analyzing how AMCs work with SRI, we have been able to answer research

question one: How has SRI affected business models for asset management

companies? This question permeates throughout the whole report as we describe the

background, the changes, and the reason for the changes. We have also identified

barriers that hinders the progression of SRI, and based on this compiled a framework

with possible solutions for coping with the barriers. The main issue, which appears

through both the fuzziness of the term sustainability, and the barriers, is the lack of

transparency among AMCs. With the current level of transparency, the average

individual does not fully understand AMCs' investment activities and communication

of these investments, and especially not how they affect the environment.

To increase the transparency, we have identified three possible solutions; self-

regulation by the AMCs, external pressure, and reform of regulations. We argue that

35

the probability for self-regulation and external pressure to happen is utterly low. The

reason why self-regulation is unlikely, is due to the lack of incentives for the AMCs,

and without incentives there is no reason for AMCs to self-regulate. The reason why

we do not believe in external pressure is due to the lack of knowledge from the

average individual, they simply do not know enough about the topic and will therefore

not be able to press AMCs into making changes. The third solution, which also will

affect the other solutions, is a reform of regulations. A reform of current regulations

would force AMCs to increase their transparency and level the playing field. This will

also increase the understanding which could lead to more impactful external pressure,

and eventually force AMCs to self-regulate beyond current regulations, in order to stay

competitive.

5.2 Theoretical Contributions

First, previous literature has focused significantly on regulations as a barrier in the

market invested in (e.g. Kaminker & Stewart, 2012). However, our study contributes

with a focus on the other side of the market, where AMCs are operating, by answering

research question two: What are the barriers for an increase of socially responsible

investing? Regulations in the market which AMCs invests in is still seen as a barrier,

but not the main one. The main barrier, which was identified in this research was

preconceptions and lack of knowledge.

Second, even though we have identified which barriers affects SRI, the underlying

issue for AMCs' was found to be lack of transparency. With the current level of

transparency, it is difficult for the average individual to understand the AMCs' work in

relation to sustainability, and what effect the AMCs have with their investments. As

the level of transparency decreases, the agency costs are rising (cf. Holmström, 1979;

cf. Jensen & Meckling, 1976), in terms of risk of losing trust and customers. However,

by analyzing AMCs from an institutional theory perspective (cf. Campbell, 2007),

their behavior is quite understandable as there are not enough incentives for the AMCs

to change. If the external pressure increased, the agency costs would surpass the cost

of increased SRI, which would create incentives for the AMCs to change. So, as long

36

as the agency costs are lower than the cost for increasing SRI, we argue that self-

regulation will not happen.

5.3 Managerial Contributions

The managerial contributions with this research is the need for regulations to increase

transparency in the industry where AMCs are operating, this is also the answer for

research question three: How can these barriers be overcome? For a change to happen,

we argue that the government need to step in, and reform regulations to facilitate

transparency among the AMC. This is also in line with Brammer et al. (2012) who

argue that regulations are effective tools to force companies to change toward more

CSR activities. Most of the AMCs are against this proposal and would rather prefer

self-regulation. However, by looking at the problem through an institutional lens (cf.

Campbell, 2007), we do not see enough incentives for self-regulation. Thus, we have a

hard time believe in a self-regulation, and advocate for new, improved, regulations in

the industry. However, we argue that there still is a possibility for self-regulation, even

if it is slim, due to the low agency costs at present. A self-regulation would serve the

AMCs well, as they want to avoid further regulations due to the uncertainty it creates.

The first step toward self-regulation would be for AMCs to increase the transparency

for their investments. This can for example mean to describe in their annual reports

how their investments actually impact the environment. Also, they have incentives to

move toward more shareholder activism as it would help them show how they are

contributing to the environment and differentiate themselves from their competitors.

5.4 Limitations & Further Research

A limitation with this research is that the findings might not be generalized with

certainty. Partly because not all, or even most of the AMCs in Sweden have been

interviewed. Also, since in most cases, only one or two respondents from each AMC

was interviewed. However, many of the interview candidates, are in the top of the

hierarchy for their organizations and have the highest responsibility for sustainability,

and many are active in organizations lobbying for SRI. With the limitation in mind, for

37

further research we recommend narrowing down the scope to be able to specify the

findings for each category. For example, one organization, like one of the largest

banks or AMCs can be researched. Another recommendation would be to focus on one

category of companies: banks, hedge funds, index funds, or pension funds. Another

area that would be interesting to research, which also would complement this paper, is

the average person's knowledge of SRI.

Another limitation with this research is that a majority of the interviewees were part of

the sustainability department in their companies. This might cloud their judgments

regarding the downsides of SRI and portray a romanticized picture of SRI. To mitigate

this, we tried to put extra weight on the upsides of SRI generated from the people

employed at non-sustainability departments, and extra weight on the downsides of SRI

generated by the people from sustainability departments. By doing this, we believe we

were able to balance out the differences in their opinions and get a realistic view of the

subject. For future research, a recommendation would be to contrast the differences in

perceptions of SRI between a sustainability department and a non-sustainability

department within the same company, as that would complement our research.

Another future research recommendation would be to investigate what type of

regulations that would be suitable to implement. As our research only proposes an

increase of regulations, but not which regulations that would be suitable.

38

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I

Appendix I: Interview guide second wave

Allmänt

- Vad är dina arbetsuppgifter?

- Hur länge har du jobbat där?

Hållbara investeringar

- Vad är en hållbar investering för dig?

- Hur mäter ni hållbarhet i investeringar?

- Upplever du att det är svårt att mäta, många olika aspekter att ta hänsyn till?

- Vad blir konsekvenserna utav att det är svårt? (om det är svårt)

- Vad ser du att det finns för möjligheter och utmaningar, motivera. (handlar om

att mäta)

- Hur tar ni ställning till den indirekta påverkan era investeringar har?

o Index?

o Investeringar i hedgefonder?

- Redovisar ni för era kunder hur investeringarna har presterat i hållbarhetsmått?

- Vilka mått?

- Varför dessa?

- Hur stor del av era investeringar utgörs av hållbara/ansvarsfulla investeringar?

- Har mängden hållbara investeringar förändrats på senare år?

- Hur vanligt är det att kunderna efterfrågar hållbara investeringar? (vilka

efterfrågar det/vilka gör det inte?)

- Har ni sett en förändring av efterfrågan på hållbara fonder och dylikt?

- Hur jobbar ni konkret med beslutsfattandet om en investering är hållbar. (olika

steg i screening/hyr in firma som gör det åt en/skickas den runt till olika

avdelningar?)

- Hur tänker ni vid hållbara investeringar? (ta bort dåliga företag/aktivt leta bra

företag/investera i dåliga och göra dom bra)

II

- Vad är fördelar/nackdelar med dessa strategier?

- Hur ofta går ni igenom och skickar era investeringar på ESG-screening?

- Vid någon av dessa strategier, tillåter ni fortfarande en viss del av

investeringarna att vara icke hållbara?

- Hur presterar hållbara investeringar jämfört med vanliga investeringar?

- Även om det finns tryck från kunder att hållbara investeringar ska göras,

prioriterar de ändå hållbarhet snarare än lite extra vinst i fonden?

Barriärer

- Vilka barriärer ser ni med hållbara investeringar?

- Varför dessa barriärer?

- Vad blir konsekvenserna av dessa barriärer?

- Hur kan man komma runt dessa barriärer? Vad krävs för att lösa det?

- Hur mycket påverkas ni av regleringar på de marknader ni investerar i?

- Skiljer sig investeringstiden på vanliga och hållbara investeringar?

- Hur påverkar det investeringen?

- Värderas marknaden på ett annat sätt än vid vanliga investeringar? (t.ex.

marknaden för vindkraft påverkas troligen mer av regleringar osv)

- Vad är det som hindrar er från att enbart göra hållbara investeringar?

Affärsmodell

- Har affärsmodellen förändrats mycket med hänsyn på hållbarhet på senare år?

- Hur har den förändrats? Vad har det gett för konsekvenser?

- Hur påverkas konkurrenskraften när man tar mer hänsyn till hållbarhet?

Svårare/lättare att konkurrera? Är det en förutsättning för att konkurrera?

- Hur påverkar det kunderna? Befintliga och nya.

- Hur mycket påverkar trycket utifrån när det gäller hållbarhet?

III

- Vilka initiativ/samarbeten är ni med i? (PRI, UN SDG, UN GC) Vilka är

bra/mindre bra?

- Hur skulle du beskriva effekterna av att vara med i dessa initiativ?

- Kommunicerar ni ut eran hållbarhet till era kunder/omgivningen?