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THE PROBLEM Through their investment decisions and engagement activities, institutional investors have the potential to influence company behaviour in the direction of a more sustainable development. Actualizing this potential requires, however, overcoming a number of obstacles.First, the concept of sustainable development (SD) has not been defined in a satisfactory manner. As a consequence, a definition of sustainable investment (SI) is lacking. The vague nature of these concepts affects negatively consultants, rating agencies, and regulators in their effort of setting clear targets. Second, the link between various characteristics of SD on the one hand and financial outcomes at the company and investor levels on the other hand, needs to be clarified further. What are the economic consequences of SI and when can they be expected to materialize?
Impediments may also reside within organizations. A lack of commitment to values relevant to sustainable development within investment institutions will marginalize sustainable investment practices. Unless these impediments are identified and removed, sustainable development will not be applied as an operational investment criterion.
HOW CAN THE PROGRAMME CONTRIBUTE TO A SOLUTION TO THE PROBLEM?
The programme sets out to reach a conceptual clarification and an operational definition of SI in relation to sustainable development. Based on this set of stricter definitions, the profitability of SD practices at the company level as well as that of adhering to a more restrictive set of sustainable investment rules at the investor level will be investigated. In order to evaluate potential shortcomings of the current practice, the current SI strategies will be measured against the new standard.
Another main goal of the project regards understanding how SI could be promoted within an investment organization and, finally, incorporated among internal investment criteria. Organizational barriers will be investigated and facilitators of SI will be proposed. The programme will also investigate mechanisms of promoting SI among institutional investors. In this frame, a particularly relevant question is: Can investors with an SI profile influence non-SI investors to follow suit? The end results of the programme will materialize in a set of recommendations and proposals of new regulatory guidelines.
WHO WILL BENEFIT FROM THE RESULTS?
Knowledge generated within the programme will be useful to institutional investors as well as to relevant industry groups, regulators, financial analysts, beneficiaries, and customers. Among institutional investors, the results of the project will be particularly relevant to trustees and fund managers who may be considering adopting SI principles in the future. The programme will also serve the research community contributing to the development of behavioural and sustainable finance as modern research areas. The program will contribute to applied research in the value chain of the financial markets by including equity valuation, the behaviour of financial analysts and other actors and portfolio selection based on sustainability criteria.
