Can financial investments enable a green transformation?

Picture of building and trees

The Swedish public pension funds (AP-funds) have been given the directive to incorporate support for sustainable development in their investment strategies. But what are the possibilities for combining financial values with sustainability values?

Monika Berg has published an article where she explores the potential for pension funds to make investments that benefits a green transformation. Pension funds are chosen because of their public governance, long-term-interest, and growing proportion of the global investment capital. Interviews with representatives from the Swedish AP-funds were conducted, to find out how they handle the tension between securing growth in pension capital and promoting sustainable development. The study is part of a larger project on green public ethics, led by Jan Olsson and financed by Formas.

The article problematizes the global thrive for economic growth, as it depends on ever increasing production and consumption that puts pressure on the earth´s natural resources. It is recognized that to achieve a deep green transformation, a radically different context for financial investment is needed, and investment rationality must be characterised by weighing environmental and social ends against financial goals. However, such a value shift is hindered by the way in which financial investments are portrayed as something neutral, detached from ethical or moral value judgements. This view was also visible in some of the interviews, where a leading analyst described it as “improper” to account of environmental values, as they were “individual preferences”.

The article finds that the distance between investors and those affected by the investments can even further downplay the role of ethical considerations, as the consequences of un-ethical investments on the other side of the globe are concealed for the investors. Therefore, a possibility to overcome this matter can be to shorten the distance between financial decisions and those affected, through investing more locally.

Although the institutionalized economic perspective remains strong, some signs of greater incorporation of environmental values were identified. For example, in collaboration with other investors, the AP-funds have been able to put pressure on the mining industry to change their practices in a more sustainable direction.

The article concludes that the public pension funds interest in long term market stability may favour investments that takes sustainability concerns into consideration. However, their interest in stability might also hinder a deeper green transformation as this inherently requires fundamental changes on a systemic level. If this is to be tackled, a more normative discussion of what role institutional investments should play is needed.

Berg, M. (2021). Value Judgments at the Heart of Green Transformation: The Leverage of Pension Fund Investors. Global Environmental Politics.

Find out more about the Formas-project here. 

Read the full article here