Investing with an Objective Conscience: A qualitative study on standardization of socially responsible investing in the Swedish financial market

Abstract: The transition towards a sustainable capital market requires private and institutional investors to shift investments to truly socially responsible companies. Identifying genuinely socially responsible investment (SRI) opportunities is, however, complicated by greenwashing, as some companies attempt to portray themselves as more sustainable than they truthfully are. To combat this, the EU has recently launched its Taxonomy: a standardized classification system that involves detailed criteria about which activities should be viewed as sustainable by investors. Previous studies have, on the other hand, claimed that such standardization initiatives are difficult to implement in practice as a result of the inherent heterogeneity of SRI. Through a qualitative method, this study investigates these conflicting perspectives between practice and previous research by examining how standardization of SRI is discussed by SRI professionals at Swedish institutional investment firms. The findings indicate that standardization as a concept is discussed in an exceedingly positive way and it is clear that the institutional investors welcome standardization initiatives. This is explained by the SRI professionals' discussions concerning heterogeneity of SRI, which indicate that they associate SRI with less heterogeneity than previous studies have claimed in the past. This renders standardization of SRI more easily acceptable from the perspective of the institutional investors. As opposed to standardization as a concept, the Taxonomy in its current state is discussed less positively as it lacks classifications of social factors and makes erroneous binary classifications. Lastly, the SRI professionals' discussions concerning the future of SRI suggest that the concept should become more standardized, allowing the concept to transition away from its heterogeneous past.