promoting green investments within the retail sector1295694/fulltext01.pdf · financial industry...

IN DEGREE PROJECT INDUSTRIAL ENGINEERING AND MANAGEMENT,SECOND CYCLE, 30 CREDITS

, STOCKHOLM SWEDEN 2018

Promoting Green Investments Within the Retail SectorA qualitative examination of ways to enhance private investor participation

GUSTAF ERLANDSSON

ANTON WAHLSTEDT

KTH ROYAL INSTITUTE OF TECHNOLOGYSCHOOL OF INDUSTRIAL ENGINEERING AND MANAGEMENT

TRITA TRITA-ITM-EX 2018:747

www.kth.se

Master of Science Thesis TRITA-ITM-EX 2018:747

Promoting Green Investments Within the Retail Sector

Gustaf Erlandsson Anton Wahlstedt

Approved

2019-01-14 Examiner

Hans Lööf Supervisor

Ulrika Stavlöt Commissioner

Nasdaq Contact person

Ann-Charlotte Eliasson

Abstract The environmental problem has become more prominent in the last decade, and in the recent years there has been a number of alarming reports published on this topic. In order to fight the climate change, the financial industry can play a key role by directing their investments towards green projects and sustainable companies, pushing companies to participate in the transformation to a sustainable world. The development of issued green bonds is evidence on that the financial market has started to allocate more money in the green market, and this development is expected to continue going forward. The development is mainly driven by institutional capital, with only very little support from the Retail segment. Hence, the aim of this thesis is to provide the market with possible solutions on how to enhance the volume of capital invested in green products from this segment. Semi-structured interviews with 8 stakeholders on the market, together with seminar discussions on a TBLI Sustainability conference and thoughts obtained through a Sustainable Advisory Board at Nasdaq constitutes the foundation of this report in order to deduce patterns to why investors choose to invest or not invest in green instruments, as well as deducing the existing problems with the current market. The opinions are compiled and discussed in aspects concerning framework issues, definition issues, future outlook and policies. Our commissioner Nasdaq has helped guided the focus of this thesis.

Our interviews combined with current literature works as the foundation to the findings on the specific area which could be of interest to all stakeholders on the financial market, but more specifically to investors, financial institutions and the government. Key findings of this thesis shows that the market in general is in need of clear guidance from the government in order to be able to adapt to the changing world. Further, the lack of a standardised framework and assessment of green investments leads to low transparency and problems with measuring impact. This describes why private investors say they do value sustainability, but fail to invest in it. Better transparency and reporting would make it easier showing the impact of the investment, which ultimately would affect private investors in a positive way as investors valuing sustainability would obtain a tangible sustainability measure on their investment, resulting in that their utility from the investment is maximised. In order to enhance the market in the current state, the authors of this report states that government support towards fintech companies contributing to the development of transparency, reporting and impact would be of interest. The authors see that such a subsidy would yield a lot of value to all stakeholders on the market, including the Retail sector.

Key-words: Retail sector, Private investors, Framework, Green investments, Bonds, Subsidies, Fintech, Impact, Transparency, Definition problem, Rational choice, Behaviour.

Examensarbete TRITA-ITM-EX 2018:747

Främjande av Gröna Investeringar inom Retail-sektorn

Gustaf Erlandsson Anton Wahlstedt

Godkänt

2019-01-14Examinator

Hans LööfHandledare

Ulrika Stavlöt Uppdragsgivare

Nasdaq Kontaktperson

Ann-Charlotte Eliasson

Sammanfattning Miljöproblemen har blivit allt mer framträdande under det senaste decenniet, framförallt under de senaste åren då flertalet alarmerande rapporter har publicerats inom detta område. För att motverka klimatförändringarna kan finansbranschen spela en nyckelroll genom att styra investeringarna mot gröna projekt och hållbara företag, och därmed driva företag till att vara med i omvandlingen till en hållbar värld. Utvecklingen av emitterade gröna obligationer är ett bevis på att finansmarknaden börjar investera mer pengar på den gröna marknaden, vilket förväntas fortsätta i framtiden. Utvecklingen drivs huvudsakligen av institutionellt kapital, med endast liten uppbackning av Retail-segmentet. Syftet med denna avhandling är därför att presentera möjliga lösningar på hur man kan öka volymen av investerat kapital i gröna produkter från detta kundsegment. Semi-strukturerade intervjuer med 8 intressenter på marknaden tillsammans med seminariediskussioner på en TBLI hållbarhetskonferens och tankar från Sustainable Advisory Board på Nasdaq utgör grunden för denna rapport. Baserat på detta härleds mönster till varför investerare väljer, eller inte väljer, att investera i gröna instrument, samt befintliga problem med den nuvarande marknaden. Åsikterna sammanställs och diskuteras rörande frågor om ramverk, definitioner, framtidsutsikter och marknadsfrämjande åtgärder. Vår uppdragsgivare Nasdaq har bidragit till att utforma inriktningen på detta arbete.

Våra intervjuer i kombination med aktuell litteratur fungerar som grunden för resultaten i denna studie, vilka kan vara av intresse för alla intressenter på finansmarknaden, men specifikt för investerare, finansinstitut men också regeringen. De viktigaste resultaten visar på att marknaden i allmänhet behöver tydlig vägledning från regeringen för att kunna anpassa sig till den föränderliga världen. Vidare leder bristen på ett standardiserat ramverk och frånvaron av hur man bedömer gröna investeringar till låg transparens och problem med mätning av effekter. Detta beskriver varför privata investerare säger att de värderar hållbarhet, men misslyckas med att investera i det. Högre transparens och bättre rapportering skulle göra det enklare att visa effekten av investeringen, vilket i slutändan skulle påverka privata investerare på ett positivt sätt, eftersom investerare som värderar hållbarhet skulle få ett konkret mått på sin investerings bidrag, vilket leder till att den personliga nyttan av investeringen kan maximeras. För att förbättra marknadens nuvarande tillstånd påstår författarna till denna rapport att statligt stöd till fintech-bolag som bidrar till utveckling av transparens, rapportering och inverkan skulle vara intressant. Författarna ser att en sådan subvention skulle bidra med ett stort värde för alla intressenter på marknaden, inklusive den privata sektorn.

Nyckelord: Retail-sektorn, Privata investerare, Ramverk, Gröna investeringar, Obligationer, Subventioner, Fintech, Inverkan, Transparens, Definitionsproblem, Rationella val, Beteende.

Acknowledgement

First of all, we would like to thank our supervisor, Ulrika Stavlot, for hervaluable insights and guidance in this project. Her practical and academicexperiences in this area has led to fruitful discussions and knowledge sharing,which has improved the quality of the thesis. Secondly, we are very grateful toour commissioner Nasdaq, and more specifically our supervisor at Nasdaq, Ann-Charlotte Eliasson. She, together with her team, has contributed to a number ofvaluable insights and gave us the opportunity to listen in on an Advisory Boardcall as well as invited us to participate in a TBLI Sustainability conference inStockholm. Their support and availability has helped improved the thesis in anumber of ways.

Further, we would like to thank our seminar supervisor Christian Thomann andour fellow students participating in our seminar group. Through your feedbackand our discussions at the seminars, you have definitively had an impact on theoutlining of the thesis. Lastly, we are grateful to all of our interviewees whohave shared their opinions with us.

Contents

List of Figures

1 Introduction 11.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.2 Research Problem . . . . . . . . . . . . . . . . . . . . . . . . . . 21.3 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.4 Research Question . . . . . . . . . . . . . . . . . . . . . . . . . . 31.5 Delimitation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.6 Expected Contribution . . . . . . . . . . . . . . . . . . . . . . . . 3

2 Overview of the Green Investment Market 5

3 Theory and Literature Review 93.1 Efficient Market Hypothesis . . . . . . . . . . . . . . . . . . . . . 93.2 Rational Choice Theory . . . . . . . . . . . . . . . . . . . . . . . 93.3 Behavioural economics . . . . . . . . . . . . . . . . . . . . . . . . 11

3.3.1 Bounded rationality . . . . . . . . . . . . . . . . . . . . . 113.3.2 Bounded willpower . . . . . . . . . . . . . . . . . . . . . . 123.3.3 Bounded selfishness . . . . . . . . . . . . . . . . . . . . . 12

3.4 Short-termism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123.5 Do Investors Value Sustainability? . . . . . . . . . . . . . . . . . 13

4 Governmental Policies 154.1 Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

4.1.1 Direct vs indirect subsidies . . . . . . . . . . . . . . . . . 174.1.2 Innovation policies targeting green fintech . . . . . . . . . 174.1.3 Education . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

4.2 Tax relief . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194.3 Long-term government guidance . . . . . . . . . . . . . . . . . . 21

5 Method 235.1 Research Approach . . . . . . . . . . . . . . . . . . . . . . . . . . 235.2 Research Process . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

5.2.1 Literature Review . . . . . . . . . . . . . . . . . . . . . . 245.2.2 Empirical Data Gathering . . . . . . . . . . . . . . . . . . 255.2.3 Data Procession and Analysing . . . . . . . . . . . . . . . 27

5.3 Reliability and Validity . . . . . . . . . . . . . . . . . . . . . . . 285.4 Ethics and Sustainability . . . . . . . . . . . . . . . . . . . . . . 30

6 Result and Analysis 326.1 Challenges for green investments and their future . . . . . . . . . 32

6.1.1 Why change is needed and why the financial industryneeds to be a part of the transition to a sustainable society 33

6.1.2 Definition problems of green and sustainable investments 356.1.3 Advantages and disadvantages with green instruments . . 366.1.4 Applicable instruments for green investments seen from

a retail investor perspective . . . . . . . . . . . . . . . . . 386.2 Promoting green investments . . . . . . . . . . . . . . . . . . . . 40

6.2.1 Do retail investors value sustainability, and what is therationale behind retail investors investment decision? . . . 40

6.2.2 Long-term common goals for the industry (politics) . . . 416.2.3 Subsidies . . . . . . . . . . . . . . . . . . . . . . . . . . . 426.2.4 Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . 45

7 General Discussion 477.1 The future and the challenges for green instruments . . . . . . . 477.2 Promoting green investments . . . . . . . . . . . . . . . . . . . . 48

8 Conclusion 538.1 Connection to Research Question . . . . . . . . . . . . . . . . . . 538.2 Recommendation . . . . . . . . . . . . . . . . . . . . . . . . . . . 558.3 Future Research . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

9 References 58

10 Appendix 6310.1 Interview questions . . . . . . . . . . . . . . . . . . . . . . . . . . 6310.2 Initial e-mail . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65

List of Figures

1 Listed Green Volume on Nasdaq Stockholm in EUR (NasdaqAdvisory Board, 2018) . . . . . . . . . . . . . . . . . . . . . . . . 7

2 Green Bond’s share of Total Market - Main Market Corporateand Municipality Bonds (Nasdaq Advisory Board, 2018) . . . . . 7

3 Research Process . . . . . . . . . . . . . . . . . . . . . . . . . . . 244 Overview Interviewees . . . . . . . . . . . . . . . . . . . . . . . . 265 Categories of findings . . . . . . . . . . . . . . . . . . . . . . . . 32

1 Introduction

In the introduction section, the authors first present the background and prob-lematisation to the thesis. Following, the purpose and the research questionsare stated. The section ends with the delimitation and expected contribution ofthis thesis.

1.1 Background

One of the most prominent and well known threats to our planet is the climatechange. A prognosis made in 2016 was that the global warming will lead to atemperature increase of 4-6 ◦C in the future, leading to raised sea levels, morefrequent heatwaves and heavy rainfall, only to name a few phenomenons affect-ing our world (USGCRP, 2017; Climate Finanace Day, 2016). To handle thesituation and work for a more sustainable world there are many environmentalincentives. Among many there are green financing that aims to attract capitalwith incentives to address environmental sustainability. Also, the increase ofgreen bonds are indicating a shifting momentum on the market and a positivetrend of action (Climate Finance Day, 2016).

The financial industry has in the recent years tried to address the climatechanges through introducing green bonds and other instruments for sustain-able investments, showing evidence of an increase in possibilities for investors toseek out sustainable investing. Also basic saving accounts have started to showtendencies of being a future possibility to connect to sustainable investment in-centives. Most people are concerned about the environment and self-interest isnot solely driving personal satisfaction in decision-making (European Commis-sion, 2017). Given this, one can ask the questions; Why is a green investmentnot regarded as a standard on financial markets? Do financial markets fail toinclude investors desire not to harm the surrounding environment?

The green bond is one of the more prominent green instruments and the pro-ceeds from these are used for climate friendly solutions. The market for greenbonds and other green investments alternatives is an important tool in mit-igating the climate threat as it helps the world in the transition to becomemore sustainable. Something that the Netherlands has worked with since 1995when they introduced green saving accounts to benefit sustainable investments(Finansdepartementet, 2018).

Recently the Swedish government signalled its desire to contribute to the devel-opment of the markets for green bonds, other green instruments and green sav-ings accounts by investigating the outcome of realising a tax reduction or/and

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subsidies for green investments with the incentives to make them more attrac-tive to the retail sector. The inquiry is supposed to be presented in March 2020(Regeringen, 2018).

1.2 Research Problem

To start counteracting the growing climate crisis and decreasing the strain andtoll our society puts on the environment, the work towards a more sustainablefuture can be argued to need the support of significant investments and real-location of capital towards sustainable business. A possible solution to attractinvestors to more sustainable projects on the capital market is to benefit themin so called green investments. Something that the Dutch financial market hasbeen pioneering (Finansdepartementet, 2018).

Today the majority of the green and sustainable investments comes from largeinstitutional investors, as green instruments are not adapted to fit the privateinvestors, and the average private investor lack the basic knowledge neededto understand the market. However, the retail sector represents an importantportion of the needed capital to build a more sustainable foundation for societyas a whole and addressing the underinvestment from this investor group isparamount in order to support a sustainable society (Eliasson 2018).

However, the retail sector represents an important portion of the neededcapital to build a more sustainable foundation for society as a whole and ad-dressing the underinvestment from this investor group is paramount in order tosupport a sustainable society (Eliasson 2018).

inspiring this sector to take responsibility and get involved in sustainableinvesting is paramount. Given this underinvestment from the retail sector, themarket needs to address (Eliasson, 2018).

1.3 Purpose

The purpose of this thesis is to investigate possible ways to stimulate green in-vestments within the Swedish retail sector. As mentioned, the Swedish govern-ment has put forward the initiative 2018:75 to analyse ways to use tax reductionsor/and subsidies to make green investing more attractive. Regeringskanslietmentions these policy reforms as possible ways to inspire the retail sector andbrings forward the Netherlands as an example where they have since 1995 usedgreen saving accounts and funds in order to benefit the sustainable investors inthe country (Finansdepartementet, 2018).

This project is requested by Nasdaq as part of parallelism to the Swedish gov-ernment’s inquiry but also as an extension since this project aims to evaluate

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solutions beyond methods related to taxation reliefs.

1.4 Research Question

The aim of this study is to answer the following research question:

How can green financial investments be enhanced within the Swedish retail sec-tor?

We aim to answer the following sub-questions in order to help us answer ourabove stated research question:

• What are the challenges for green investments and what do the future looklike?

• Which are the possible ways of promoting green investments to the retailsector?

1.5 Delimitation

We limit our study to research ways to attract private investors to green invest-ments. We believe that this limitation will yield a valuable result as the marketfor green products is growing and the results could potentially be applied toother sustainable investments, one example being social investments. Further,a solution to the Swedish market will be presented and hence the report willnot focus on making green investments more interesting to all markets andcountries in the world. With that said, the result could potentially be used forinspiration to other countries.

In relation to our second sub-question, we will investigate different kind ofpolicy enhancing actions that the government could take in order to enhancethe market. Moreover, the study discuss these actions in general but do notfocus on these should be implemented in the system, nor how the funding shouldbe structured. However, this does not restrict the authors to discuss this topicbriefly.

1.6 Expected Contribution

Our research is expected to contribute to financial literature, and the debateregarding the need for governmental intervention on the green financial market.We will offer empirical data on the outcome of how green and sustainable in-vestments could be made more attractive to retail investors and how to handlepotential challenges linked to the financial market. If our outcome and solutions

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shows valuable, there is a possibility that the government could use parts of thisreport as inspiration to their inquiry on how to enhance green investments inthe retail sector, released at the latest in March 2020.

In addition to the above stated, results obtained from our study on the retailsector may as well be applicable on other areas of the financial market whereincreased investments are needed. Further, there is a possibility that the derivedtheoretical framework could work as an inspiration to the government whenexamining different policy enhancing tools to affect investment appetite.

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2 Overview of the Green Investment Market

In this section we give a short introduction to the green financial instrumentsdiscussed in this report, and more in detail how well fitted these are to the retailsector. Keep in mind that most instruments can be created as ”green”, but thefocus on the instruments discussed are the ones assessed to be most suitablefor the private investors. In the end of this section, an update on the greenfinancial market as of today is found.

Bonds

A financial instrument that can be designed in many ways with different tenorand can have both a variable and fixed interest rate. It is a financial instrumentoften utilised by government and corporates, and the holders of the bonds arereferred to as a creditor or debtholder (Misamore, 2017). The market for greenbonds has grown at an impressive pace over the last couple of years and is seenas the salient in this area within the debt spectrum. Supporting this is Figure 1showing the development of listed green debt on Nasdaq in the Nordics, wheregreen bonds constitute the majority of the total volume every year (Eliasson,2018).

The proceeds from green bonds are used for climate friendly solutions, and thegreen bond itself, intends to offer the same return to investors as more regularbonds do. The market for green bonds and other green investments alternativesis an important tool in facing the climate challenges as it helps the world in thetransition to becoming more sustainable. Benefits with green bonds are statedbelow (Climate Finance Day, 2016):

• Support = Supporting low-carbon and climate projects in the long term

• Attract = Green bonds new investors which broadens the investor basefor issuers. It also gives the issuing company a positive reputational effect

• Preferences = Without sacrificing any financial return, investors help ben-efiting the environment through their investments

Structured Product

A structured product is an instrument that is created using a traditional securityas underlying asset, such as an investment grade bond, and replacing its cashflow with other assets. Hence, the instrument can offer investors customisedexposure to different asset-classes. It is a useful complement to traditionalinvestments since it could be used to diversify or hedge an existing portfolio.

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Since structured products are customised the investor will have to consider apotential lack of liquidity in the asset. Due to this property, the return ofthe investment is often realised closer to maturity date and hence structuredproducts are more of a buy-and-hold asset (Anjou and Oxenstierna, 2017). Asthe instrument can be created with a green bond as underlying, and takingthe flexibility variable into consideration, a green structured product could bea good complement in some retail investor portfolios. Hence, the instrument isassessed to have potential to be a part of building the green market.

Savings account

A savings account gives the account holder interest on its deposited amount.Depending on policies, the deposited amount from customers to their savingaccount (sometimes called deposit account) can be used in order to lend toother customers (Deuflhard et al., 2018). As of today there are no green savingaccounts offered by Swedish banks or institutions.

Exchange Traded Products

An exchange traded product, called ETP, is a type of security contract thattrades on an exchange intra-day. The most common underlying asset to theETP is a share, index or commodity. An exchange traded fund (ETF) is onetype of ETP. It is a fund that is traded intra-day on an exchange. The fund canbe built up by a number of shares, but since it is traded over the day and thereare buyers and sellers of the fund, the fund obtains a market value which candeviate from the net asset value (NAV) of the fund (Anjou and Oxenstierna,2017). Since the underlying often is a share one may think that the applicabilityto the green area is limited, which to some extent is true.

Green Investment Market

The market for green investments has grown at a fast pace during recent yearsand the year of 2018 is no exception. The biggest market for green investmentsin Sweden is the green bond market, which by July 2018 reached the totalissuing volume of green bonds of 2017, and has since then experienced even moregrowth (Eliasson, 2018). At the same time as green bonds gain further traction,there are more instruments that adapts to the green market. For example,the first green structured product was issued in the summer of 2018. Sincethe summer, the market has seen a number of new issues of green structuredproducts (Eliasson, 2018). The strong volume enhancement of listed greendebt (defined as bonds and structured products) on Nasdaq, as well as thepenetration of green bonds on the bond market, can be found Figure 1 andFigure 2.

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Figure 1: Listed Green Volume on Nasdaq Stockholm in EUR (Nasdaq AdvisoryBoard, 2018)

Figure 2: Green Bond’s share of Total Market - Main Market Corporate andMunicipality Bonds (Nasdaq Advisory Board, 2018)

As a retail investor, in general, it is hard to invest in green products that gives

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a healthy diversification as there are few instruments to diversify one’s ownportfolio with. When it comes to green bonds, there is only one company,Advanced SolTech, that has issued bonds that retail investors are able to investin. The amount of capital needed to invest in such bond is significantly lowercompared to an ordinary bond. The structured products that are availableto investors is a good option to diversify the portfolio and invest in green,however, the structured products that are issued today might not fit into someretail investors portfolios and hence is not an option. This leaves investors withthe option to buy green bond funds. There are a few green bond funds inSweden today, examples are SPP Green Bond Fund and SEB Bond Fund SEK,but they include green bonds that are not only Swedish (SEB, 2018., and SPP,2018).

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3 Theory and Literature Review

This section gives the reader an understanding of the theories and literatureused in this report. It includes theory to help the authors to address the cur-rent market failures on the green financial market identified by the intervieweesand the literature. Hence topics on efficient markets, investor behaviour andinvestor preferences in order to carry arguments for market failures. The cho-sen theories gives the authors the opportunity to derive an analysis and deliverrecommendations based on data gathered through interviews.

3.1 Efficient Market Hypothesis

A well-functioning financial market is said to be efficient to a set of information,Q, if a securities price doesn’t change given that any of the information in theset, Q, is revealed to all investors on a market. The efficient market hypothesistherefore states that an efficient market always, correctly and fully, reflects allrelevant information on a market (Burton, 1989). In the case of this thesis thelack of valid information in focus will be the data related to reporting of greenbehaviour among business entities. The formal concept of the Efficient MarketHypothesis was established by Eugene F. Fama and Paul A. Samuelson in theearly 1960s (Delcey, 2018).

In Fama’s publication Efficient Capital Markets: A Review of Theory and Em-pirical Work the ideas of an efficient market is presented. Fama states that thehypothesis can be expressed in terms of market equilibrium modelling, wherein this case the equilibrium is specified for prices that fully reflect all relevantinformation, and that market efficiency is defined in relation to informationmeasures (Fama, 1970).

The efficient market hypothesis is an established concept in finance but opin-ions have been divided regarding its validity. Fama although firmly states in hispublication from 2003, The Efficient Market Hypothesis and Its Critics, thateven though financial academics is starting to incorporate models with psycho-logical and behavioural parameters, financial markets are more efficient thanthese models would have you believe (Burton, 1989; Burton, 2003).

3.2 Rational Choice Theory

Rational choice theory is a cornerstone within economic theory and has beenfor the last century. The principle concerns the behaviour of individuals fac-ing choices that will in some regard affect the well-being of their person. The

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theory is based upon the fundamental belief that individuals always make deci-sions based on the principle to maximise their personal utility and consequentlyminimising their loss (Briggs, 2017).

The focus when using rational choice theory to describe micro economic decision-making is the individual (methodological individualism), and all types of greatersocial behaviour (including social change) can be explained by first examiningthe rational decision-making of individuals. Rationality defined in the sense ofmicro-economic modelling is: A individual faced with limited resources makesdecisions to optimise their projected satisfaction (Mathis and Steffen, 2015;Crossman, 2018). Steven L. Green, Professor of Economics and Statistics, ex-presses the concept in terms of consumer markets. When there is a buyer anda seller, in trade, people act as to best satisfy their goals.

Further, typical when modelling agent’s preferences based on assumptions oftransitivity and completeness, economists try to maximise so called utility func-tions. The case for modelling choice theory (making choosing between alter-natives a must) goes back to what was mentioned in regards to the definitionof rationality, limited resources (Green, 2002). An investor that values return,green values and other investment attributes, tries to satisfy its own utility inregards to choosing between available investment alternatives subject to theirbudget. Depending on what the market is offering in the sense of financialproducts and information, and subject to the underlying structure of the mar-ket place, this can mean including all, excluding one or several parameters.

Another vital part to define in the concept of rational choice theory is specifi-cation of preference. Historically the most commonly used perspective in eco-nomics is that of self-interest standard of rationality, meaning that a person’sobjectives is to satisfy herself and values only results that directly affects theown person. Although less common, an alternative to the self-interest standardof rationality is the present-aim standard of rationality that explains a rationalpersons preferences as acting to satisfy any objective they hold when makinga choice. Green (2002) conclude that explaining rational human behaviour byonly regarding self-interest is not painting the whole picture and accepting allbehaviour as a result of solely preferences is neither that forming a realisticmodel.

The self-interest standard of rationality analyse utility in regard to financialincentives for a person, in the sense that more is always better. An investorwants to maximise its return and a consumer of good and services simply wantmore (Hausman, 2014). This model has historically been good at predictingbehaviour consistent with what has been observed in reality and compared to

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the present-aim standard of rationality model, which has a hard time specifyingwhat drives the non-selfish preferences, the ”selfish way of choosing” has beeneasy to define. Cases have although been made for models to include criteriafor non-selfish preferences (Green, 2002).

3.3 Behavioural economics

The field that combines economics and psychology is known as behaviouraleconomics. It is a theory that assumes irrationality among individuals. Itstates that no matter age or intelligence, individuals are rather myopic when itcomes to maximising utility due to irrationality in the decision making process.Most individuals usually make poor and rash decisions even when it is obviousthat a certain choice would lead to better long-term outcomes (Kaplan et al.,2013).

Behavioural economics is rather close to the more standard economic modelsin the matter that agrees on the general topic that markets and incentivesare variables that play key roles in shaping investor’s behaviour (Thorgeirssonand Kawachi, 2013). The difference between conventional economics and be-havioural economics is that the latter theory acknowledges three variables con-nected to human traits: bounded rationality, bounded willpower and boundedselfishness (Mullainathan and Thaler, 2000).

3.3.1 Bounded rationality

The limited capabilities of information-processing among humans is referred toas ”bounded rationality”. It is the opposite to the idealised ”homo economi-cus” in traditional economics, which states a situation where humans take theperfectly right decision as they are invariant in preferences, perfectly informedand forward looking. The limitations among human explained in ”boundedrationality” leads to that they use mental shortcuts or rule of thumb in theprocess of decision-making. Something that Kahneman and Tversky (1974)has shown can lead to systematic errors, eventually leading to an unhealthybehaviour (Thorgeirsson and Kawachi, 2013). Mullainathan and Thaler (2000)has listed illustrative examples of where human decisions and judgements de-parture from rationality. These include for example overconfidence and overoptimism. Thorgeirsson and Kawachi (2013) has three additional examples,namely anchoring, loss aversion and status quo bias, which is explained throughdual process theory.

The short description of Overconfidence can be illustrated in various settings.Investors that are overconfident in their own abilities is one example. In this

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situation, the investors will execute trades even if they do not have all the neces-sary and true information, which is one explanation to the presence of anomaliesin the financial markets (Mullainathan and Thaler, 2000). Anchoring explainshow people’s judgements and estimates are biased towards an initial value, lossaversion explains how disproportional sensitive humans are in the matter oflosing something versus gaining something, and status quo bias indicates thatpeople prefer to stick to the status quo rather than changing their routines.

3.3.2 Bounded willpower

Bounded willpower is a concept that explains one of the reasons to why humansdo not take the best decision in the long-term is attributed to the lack of self-control. These situations occur when individuals are caught in a situationwhere an intertemporal choice is involved, which is a decision where costs andbenefits are spread over time. This could be for example preventive behaviours,where the cost of a behaviour today yields a benefit that occurs at some pointof time in the future. Another example is sinful goods where an individualtakes a decision to do something that is fun now, but is costly in the long run(Thorgeirsson and Kawachi, 2013).

3.3.3 Bounded selfishness

The third departure from standard economic theory, captured in behaviouraleconomics is called bounded selfishness (Thorgeirsson and Kawachi, 2013).Economists within this area stress that the primary motive for humans aregrounded in their self-interest (closely related to present-aim standard of ra-tionality). An illustrative example of this is the occurrence of the free riderproblems, which economists mean is due to the fact that the general person’sprivate welfare must improve in order to any public good. However, there areexamples where humans act selfless such as when conducting volunteer work orgive money to charity (Mullainathan and Thaler, 2000).

3.4 Short-termism

According to Casey (2018), short-termism is a behaviour that is common amonginvestors. It describes the short-term focus that investors have, which to someextent comes at the expense of proper long-term decisions. Because of this ra-tionale among investors, implementing sustainability into capital decisions andstrategic planning is rather hard. Investors extreme focus on quarterly earn-ings put extensive pressure on the management of corporations, whom needs toovercome this obstacle in order to focus on their long-term value creation andstrategy. The result of this extensive short-termism leads to that less money

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is allocated to research and development of sustainable products as well as lesscapital invested in effectively managing the own business regarding the environ-mental risk. This ultimately results in that companies miss out on investmentopportunities that would result in a long-term net present value (NPV) that ispositive (Casey, 2018).

However, there is a debate weather short-termism actually is bad or not, whichhas been present for many years. A widely cited article written by professorLaverty (1996) states that the evidence in the studies derived on this topic areinconclusive. Something that Martin (2015) further points out in his article,but where he takes the standpoint that short-termism is a problem. However,Martin argues that it is hard to prove short-termism and its consequences.Mainly due to the fact that the data of which studies are derived from arecontradictory. Further, performance of corporates is a complex product ofadaptive systems. To draw conclusions on that x causes y is hence very hard(Martin, 2015).

3.5 Do Investors Value Sustainability?

In a recent report written by Hartzmark and Sussman (2018), investors be-haviour regarding sustainability is examined by investigating in- and outflowsof capital from the mutual fund market in the U.S. In March 2016, Morn-ingstar published a sustainability rating where over 20,000 mutual funds wereranked between one and five based on their holdings, where the lowest rank”one” equals has the lowest sustainability according to Morningstar, and theones that got the ranking ”five” has the highest sustainability. All funds wereranked on a percentile basis and out of the approximate 20,000 funds, 10% re-ceived the lowest ranking and 10% received the highest rating (Hartzman andSussman, 2018).

By examining the in- and outflows of capital from these funds over the nexteleven months, Hartzman and Sussman (2018) found that the lowest rated fundson average experienced quite large relative outflows the total fund size, whereasthe highest rated funds experienced relative inflows. Funds rated in the middle,between ”two” and ”four”, were not significantly affected. This is, according toHartzman and Sussman (2018), evidence on that investors value sustainability.Another factor pointing towards that investors value sustainability and areinterested is the fact that funds that received high rating in the Morningstarranking obtained substantially more website visits and the ones with the lowerrating had less visitors to their website.

The relevance of the result should be seen as indicative, this since Hartzman

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and Sussman (2018) states the fact that the scope of the Morningstar ratedcompanies is too small to actually determine that investors value sustainabil-ity on a general basis, this since the number of mutual funds treated equalsonly a small percent of the total capital invested in mutual funds market-wide.Further, Hartzman and Sussman examines the performance of the funds withthe Morningstar rating and they find no evidence that more sustainable fundsperform better, in fact what they found indicates contrary. However, drawingconclusions on this set of data is hard due to the rather short time frame of 11months.

Morgan Stanley Wealth Management released an article in 2017 supporting theabove mentioned when it comes to the fact that investors value sustainability.More specifically Morgan Stanley found that Millennials (defined as those whowere born between 1980-2000) has the most positive approach towards sus-tainable investing. This statement is further supported by Waltre (2018) whomstates that Millennials (in the study defined as people in the age between 18-35)value financial return and the impact attribute of the investment equally.

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4 Governmental Policies

This section covers relevant literature on possible instruments the governmentcould use in order to enhance private investors participation on the green finan-cial market. Actions discussed are attributed to subsidies, tax relief and politics.These are mainly argued for in the context of enhancing green fintech as the in-terviewees and the literature points towards failures on the market to capture allrelevant information attained to green instruments. The interviewees pointedout innovative green fintech companies to have the greatest possibility to impactthe development of the green financial market in the near term, as these couldaddress problem with the sharing of green information. Arguments for targetingfintech in order to address this and other market failures will be outlined below.

4.1 Subsidies

Table 1 below summarises relevant litterateur on the governmental instruments.Each instrument is connected to certain market failures they could be argued toaddress. The purpose of enhancing the retail sector’s participation in Sweden’sgreen financial market is to support sustainable business and in the long runstrangle the capital pipeline towards environmentally harming business.

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Table 1: Policy overview

Authors ClassPolicy instru-ment

Market barriers /failures

Walker et al., 2018;Miller, 2013; Olmos etal. 2012

Direct fiscaland financialincentives

Direct grants

Negative externalities,market’s failure to sup-port seed-stage innova-tion

Walker et al., 2018;Mazzucato and Penna,2016


Co-investing (intocompanies)

Market’s failure to sup-port seed-stage innova-tion

Miller 2013; Olmos etal., 2012


Loans and loanguarantees

Market’s failure to sup-port seed-stage innova-tion

Walker et al., 2018Indirect fiscaland financialincentives

Tax incentivesMarket’s failure to sup-port seed-stage innova-tion

NL Agency, 2010; Lars-son, 2013

Indirect fiscaland financialincentives

Tax policy re-warding investors

Undersupply of greeninvestments

Alexandar andPoyyamoli, 2014;EPA, 2018

Systemic instru-ments

Subsidies educa-tion

Lack of knowledge

OECD, 2015; OECD2018; Li et al. 2013

Regulatory mea-sures

Long-term gov-ernment guidance

Financial systems in-ability to change andsupport sustainabletransition

A subsidy is a policy relief program, often initiated by a government, benefitingindustries, corporations or individuals, and the initiatives are mainly financialrelief to support an economic or social policy. In traditional economical marketmodels, when the focus of implementing a subsidy is just the effect it gives toconsumers and producers it is regarded to create dead-weight, i.e. a loss intotal financial surplus in an economy. When subsidy programs is implementedby a government on a marketplace it changes the relative price of a good or ser-vice facing the producers and consumers, by making it cheaper to produce andconsume a good or service while the government takes on the expense (Hutchin-son, 2016). The problem in this approach is that it does not include the effects

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of producing or consuming to stakeholders outside the producer-consumer re-lationship. Negative externalities, such as negative environmental impact, ofproduction and consumption, must be included if one is to calculate the totalcost or benefit to society. A green investment would aim to finance companiesand projects that minimise the negative externalities to society. When the totalcost/benefit of the production and consumption of a certain good or service aregreater/less than the cost/benefit to agents on a market, the market is showinga type of market failure (Helbling, 2017; Miller, 2013).

Traditional theory motivates intervention in at least one of following regards:equity or efficiency (Carter, 2015). One further argument for mobilising privateinvestments in the first place is that is eases the pressure on public capitaland it utilises the skills and competitive nature of the private sector whicharguments have been made for constitute a better foundation in achieving profitand growth. Important notices in Carter’s (2015) key takeaways is however thatefforts to attract more private capital to developing countries only result in adecrease in returns if the number of projects and investment objects does notincrease as well.

4.1.1 Direct vs indirect subsidies

Governmental relief programs can be achieved by direct or indirect subsidies.A direct subsidy is an actual cash transaction to a target group or sector whilean indirect government handout is a systematic non-cash relief that affects thetarget group under a policy. Examples of direct subsidy programs are, explicitgovernmental guarantees, interest-free loans and direct grants. An indirectsubsidy program can on the contrary be an in-kind program, benefiting thepeople through goods and services, regulatory relief or implicit governmentalguarantees. All non-cash reliefs are defined as indirect subsidies (UNEP, 2016).

4.1.2 Innovation policies targeting green fintech

The need for sustainable transformation in corporations and in the financialsystem implies a need for innovation. Innovation in firms’ core business anddisruptive fintech, if rightly implemented and supported, can led this transfor-mation (Banking Environment Initiative, 2017; Woodhead, 2011). Historicallythe level of capital that has reached entrepreneurial projects have been belowoptimal, and if innovation is to play a key role in the needed rebuilding of thefinancial system a substantial governmental intervention by policy reforms isneeded (Walker et al., 2018). Innovation by which the end-value should reachprivate green investments, can be led by innovative technology directly support-ing green technology, ideal electrical cars for example (affecting supply), and

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also by innovation in the financial system through fintech technology supportingfor example investors ability to track a portfolios carbon emission footprint (af-fecting intermediary market and indirectly demand), making investment moretransparent and easy for the investors.

Innovation policy programs can be achieved through different governmentalinitiatives. Mazzucato and Penna (2016) have proposed an extensive mission-oriented policy framework for the Brazilian innovation system that according tothem is fit to address society critical problems with disruptive innovation. Theframework underlines the importance of cooperation between government, insti-tutions and private sector in order to successfully support complete innovationcycles. Mazzucato and Penna (2016) further states in their study that in thecase of the Brazilian government, there is a need to re-evaluate the philosophyof taking on risk, to achieve innovation driven transformation.

Olmos et al. (2012) argue that given the challenges green-tech innovationprojects face in attracting needed amounts of capital, moving past current mar-ket hinders and given that firms often lack resources and knowledge to take aproduct to market, motivates direct support to ventures. Similar to the evi-dence and reasoning of Walker et al. (2018), and Mazzucato and Penna (2016),Olmos et al. (2012) argue that governmental policy should fill the investmentgap from private investors, not replace them. Olmos et al., unlike the previousmentioned supporters for governmental policy, suggest direct grants as the maininstrument of relief but argues that there is also some relevance in using interest-free loans, direct equity investments and other forms of subsidies. Grants andinterest-free loans would allocate the most capital to each entrepreneurial firmfitting the criteria for relief, but would be very expensive for the governmentand there is a risk of overfunding a lot of ineffective innovation projects (Walkeret al., 2018). Walker et al. conclude that governmental intervention through fi-nancial aid (co-investing and direct subsidies) in the earliest stage of innovationbring the most value to both investors and entrepreneurs.

Miller (2013) assort different subsidy programs and discuss two types of match-ing grants, i.e. direct cash grants to firms. Traditionally matched grants canbe used when there are barriers for firms and innovation projects to enter amarket or to grow past a certain stage and also when externalities can be iden-tified. The challenge with traditional matching grants is that they can createnon-sustainable companies that tries to fit the bill for a grant and it can createmoral hazards in the receivers. To avoid these shortfalls one can try to minimisethe amount of the grant that is paid upfront and try to connect it to firms andprojects results. The other type of matching grant Miller (2013) discusses is

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distributed through a so called challenge fund, where the capital already ini-tially is distributed on competitive premises. Firms and initiatives that coulddemonstrate social contributions, but would not survive without financial aid,would be eligible for a capital contribution from the fund.

Miller (2013) also discuss partial credit risk guarantees as a possible subsidythat could reach innovative firms on a market. The credit risk guarantees areused to give banks and financial institutions incentives to give loans to riskierenterprises and initiatives by the government promising to repay part of the loanif the innovative enterprise or initiative fails. These type of programs is oftenused when a government wants to push lending to specific target groups andtake advantage of the fact that they move under other regulatory constraintscompared to banks or financial institutions. Credit risk guarantees is utilised bymore than half of the worlds governments, and they are mostly used to supporta specific market location.

4.1.3 Education

In the US, the governmental organ EPA, Environmental Protection Agency,has since 1992 given grants to applicant’s education initiatives that wish togive audiences (students, educators or general public) the right foundation inorder to take action on environmental issues. Agencies in the US can applyfor grants by outlining a project’s agenda, action plan, budget proposition,contribution/outcomes and if possible, past performance. In total the pro-gram had given out 3,600 grants (totalling approximately 72 million dollars),by the end of 2016 (EPA, 2018). Unfortunately, there is a lack of studiesevaluating how the environmental education program in the US has impactedtrue environmental action among the participants in the country. However,a similar program in India, environmental education for sustainable develop-ment (EESD), demonstrated significant differences in environmental knowledgeand behaviour between the participants in an experimental program and non-participants (Alexandar and Poyyamoli, 2014).

4.2 Tax relief

A tax relief is a form of a financial policy with an incentive to decrease theamount of tax a person or an entity has to pay the government related to acertain program. There are different ways of using taxes as a tool to inspireinvestors on a market and in order for this project to estimate the feasibilityof a certain solution we need to take into account the consequences of suchprograms, both for the government and investors in the retail sector.

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The Dutch government has since 1995 had tax relief programs covering greenfunds and green savings accounts. In general, these investments have histori-cally meant accepting a lower return compared to what the traditional markethave been offering, but these programs have compensated investors throughlower income tax on green money and tax-free capital gains up to 55,000EURO/person. The green investors on the Dutch market have on averageduring this period received a 2.5 percent tax benefit and have come of evenor made a slight profit by choosing green investments. The program has alsomeant that banks have been able to lend money to green projects at a lowercost (on average 1 percent). In 2010 the Dutch government paid out 150 millioneuros in tax-incentives under the program while 6 billion euros were investedin green projects in the country. These programs has also led to Dutch banksbecoming among the leading socially responsible financial institutions since theprograms was implemented and are taking part in achieving a transformationof the financial system (NL Agency, 2010).

In the late 1970s and early 1980s the Swedish government implemented severaltax relief programs to increase overall saving in the country. The first savingaccount program, Skattesparande, gave the investor a tax reduction related tohis/her income and between 1978 and 1982, 425,000 investors allocated theirmoney in such accounts. The government also launched Allemansparande andAllemansfonder in 1984 where the later was an incentive to get private investorsto use funds by removing the tax on capital gains. In 1990 1.7 million accountshad been opened in Allemanssparande and Allemanfonder combined, and in2009 150 billion Swedish crowns had been invested by 4 million individual in-vestors just in Allemansfonder (Ohlin, 2009). Historically tax relief programshave been a good instrument to attract private investors to new investmentalternatives in the Swedish financial market (Larsson, 2013).

Common critic of these tax incentives is that the biggest surplus from theprograms do not go to the investors or the companies but reaches the biggerbanks. The reason for this is that the banks have been able to charge large feesrelated to investing in these funds and saving account since the investors havealready been compensated for the investment by the government (Lindqvist,2009; Ohlin, 2009; Strandberg, 2011; Berglund, 2015). Berglund (2015) furtherevaluates the performance of Allemansfonder and argue that the tax incentiveshave created lock-in effects in these funds that have resulted in market failures,since the banks can take out larger fees than normal without offering an increasein return or value to the investors. Given this one can argue the relevance andcost-efficiency of implementing similar tax relief programs with objective tomobilise a particular instrument segment and investor group.

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4.3 Long-term government guidance

According to Li et al. (2013), governments play a key role in order to supportthe capabilities of industries’ innovation abilities. OECD (2015) put furtheremphasis on the need for governments to establish long-term goals regardingcarbon objectives of which each industry can adapt to. By this, industriescan address the climate change problem. OECD (2018) fortify that the lawsand regulations decided by governments are important to all areas of life andbusiness, and a cornerstone in achieving social and environmental goals. Thefast pace of technological transformation and innovation, combined with theclimate change problem the society face, puts extra pressure on governments tobe agile and adaptable to the change (OECD, 2018).

OECD (2015) points out that the government, except for general long-termcarbon emission reduction objectives, could set targets for a specific market. InOECD’s report (2015) the renewable energy market is treated. Applied to thefinancial market translates it into the government setting specific targets forsustainable investing, or general sustainability goals that the financial industrycan adapt to. These could for example be long-term greenhouse gas (GHG)emission reduction objectives, of which the financial industry can adhere to,leading to innovation in product offering, eventually enhancing the investmentsin sustainable products among retail investors. The design of these long-termemission objectives could take various forms, such as reduction of GHG com-pared to historical levels or limiting the relative GHG emissions compared to”business-as-usual” projections (OECD, 2015).

Long-term emission objectives are essential in addressing the climate changeand support mitigation efforts on both a national and global scale. The objec-tives set could be accompanied by a system for emission-reporting. This wouldhelp to facilitate tracking and measuring progress, eventually paving the wayfor carbon pricing implementation (OECD, 2015). An example of this is foundin Australia, which introduced mandatory GHG reporting for corporates twoyears prior to the establishment of their national carbon price, helping to min-imise potential data problems prior to the pricing of carbon (Prag et al., 2012).Similar examples of long-term government guidelines have been introduced inthe EU, where certain companies have to report on corporate social responsibil-ity (European Parliament, 2014). Another example is found in Denmark, whomintroduced mandatory sustainability reporting for companies in 2012 (DanishBusiness Authority, 2013).

Introducing GHG emission reporting for corporates is challenging to govern-ments since there is a risk of putting excessive burdens on companies, or not

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giving companies the right incentives to act on their emissions (Kauffmann etal., 2012). Also, when introducing objectives and targets, not necessarily re-garding GHG carbon emission, it is important for the government to considereventual conflicts with other initiatives for supporting development of sustain-ability. Further, in order to succeed, the objectives and targets set should berather ambitious, but still realistic and time-bound (OECD, 2015).

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5 Method

Below our approach to research method is described and motivated, where wefirst describe the research approach followed by the research process as explana-tion for chosen approach. Further, the reliability and validity of the research isdiscussed and a description on how the empirical data was obtained and anal-ysed. Wrapping up this section are some ethical aspects of this research.

5.1 Research Approach

At the start of the project, the explanatory approach was chosen in order toapply inductive and qualitative approaches throughout the project. Interpre-tivism is the paradigm that is adopted through this project since it is assessed tobe a suitable paradigm to utilise our findings in order to create theories and as-sumptions that can be applied to the green financial markets in Sweden (Collinsand Hussey, 2014). In addition, a thorough literature review was conducted inorder to identify suitable frameworks that can be utilised by the stakeholdersin the Swedish financial market in order to support green investments in theretail sector. The literature review will also support our ability to analyse find-ings from the interviews conducted. Findings from the interviews will consistof individual perceptions from people within certain areas in the industry andhence it is important to account for variation and subjective interpretations,both from the interviewee but also the interviewer.

Existing literature was used in order for us to investigate and further explain thecontext of which the research study was conducted. The analysis was conductedas a case study and used experienced professionals currently active within theindustry to find relevant patterns of similarities and differences to support solu-tions to the research question. This way of execution is viable for our researchsince the interpretivism paradigm is applied as well as in-depth knowledge ofthe topic under investigation is needed (Collins and Hussey, 2014).

5.2 Research Process

A parallel procedure as shown below was used in this thesis, where the initialpart of the thesis consisted of a literature review. The literature review wasconducted continuously throughout the project, both before, during and afterthe empirical data gathering. Part two consisted of an empirical study wheresemi-structured interviews were conducted with various stakeholders active inthe Swedish financial market, where the majority of the interviewees had goodinsight in, and knowledge of, the retail sector. Semi-structured interviews withopen questions was chosen in order to obtain qualitative data (Blomkvist and

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Hallin, 2015). In the last part of the project an analysis was performed basedon the literature review conducted and findings from the interviews. The role ofthe analysis was to answer the research questions and derive recommendationsfor the Swedish financial market in order to promote green investments in theretail sector.

Figure 3: Research Process

5.2.1 Literature Review

The aim of our literature review was to find relevant theories and frameworksthat would give us the opportunity to analyse our empirical findings. This wasdone in order to better understand the existing frameworks and identify possiblevariables and areas that these do not include, where our work could be seenas a complement. To find relevant literature, we mainly used KTH’s databasePrimo. However, Google Scholar, complementary Google searches, the webpageSwedish House of Finance as well as help from our commissioner and the helpfrom our supervisors contributed to our literature review. Throughout theproject, the goal of our literature review varied and can be described throughthe following three different stages:

To obtain a deeper understanding of the topic of the thesis, the first part of theliterature review was focused on green investments, financial instruments andeffective markets. This gave us a broader knowledge base and understanding offurther topics to study, as well as helping us defining the research question andour sub-questions.

The second phase was during the data-gathering process, where the literaturereview included topics on Rational Choice Theory, Behavioural Economics andan initial review of subsidies, since these topics was a good complement ofour knowledge gained in the first phase, as well as the topics were touched

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upon during the interviews. Throughout the whole data-gathering process theliterature review was conducted continuously to ensure that we had an adequatefoundation to be able to cover topics mentioned during the interviews in ouranalysis.

A finalising literature study was done during the post-processing and analysisof our empirical data in order understand how our empirical findings relatesto findings and results among other researchers. The finalising literature studyincluded further development of the subsidy section and topics such as short-termism and investors preference towards sustainable investments. By thisapproach we were able to identify patterns within our findings and draw con-clusions. The information of which the findings are based on is attributed tojournals, business presses, articles and books.

5.2.2 Empirical Data Gathering

Semi-structured interviews were used in order to obtain empirical data. Theempirical data, together with the literature review, helped us answer the re-search question. The process of gathering empirical data was divided in twophases, where we in the first phase defined the interview questions, and relevantinterviewees were approached through e-mail. The second part included meet-ing the interviewees and conducting the interview. When the interviews hadbeen conducted, the initiation of the analysis started, followed by discussionand conclusion.

Sample construction

Two different groups were defined in order to construct the sample, namelyprofessionals working with financial instruments, professional economists andother professionals on sustainable finance. This was done in order to separateinterviewees with specific financial instrumental knowledge from the ones witha deeper knowledge of economics and investments. It was deemed that the firstgroup was important to our own knowledge of financial instruments, but also tofind out what kind of instruments can be created and be available to the retailsector. The second group was seen as the most crucial group in order to helpanswer our research question. This is due to the insights and knowledge theybring about the market and how stakeholders can work in order to supportgreen investments. This is also the group that has the most insights in howgovernmental support may or may not affect the market, which is valuable tous since it gives us the opportunity to derive recommendations of which pathto choose to promote green.

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Selection and approaching of interviewees

In order to get in contact with the interviewees, contacts from our commissionerwere used since the commissioner has a vast network with the appropriatepeople. Other than contact information to potential candidates given to usby our commissioner we have searched newspaper articles, company websites aswell as utilising our personal network in order to get in touch with professionals.

Given that the commissioner assisted with contact information we easily reachedthe more senior employees that were of interest in certain financial divisions.Regarding the other interviewees interviewed the general process was to try toget in touch with the senior colleague that could either be interviewed or giveus contact information to another person within the same area that we couldpotentially interview. The reason for trying to interview the seniors is due tothat they often have better knowledge of the market and the instruments as wellas they can draw parallels to historical events or own experiences, somethingthat is harder to do for the most junior ones. When the proper candidate wasidentified the initial contact was always taken by email. The process proved tobe rather effective, since the number of interview request sent out was 14 and11 answered our email. However, not all accepted the interview request. Thenumber of accepted interview request was 8 which implies an acceptance rateof approximately 57%.

The different roles of the interviewees provided us with a thorough understand-ing of the subject, as well as helped us with different potential approaches tothe solution of our research question. In chronological order, the intervieweesare listed below:

Figure 4: Overview Interviewees

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Interview execution

The choice of conducting the interviews in person was made in order to strengthenour finding as it is easier to capture details and body language, as well as wecould record the interviews with good quality. The only interview conductedover the phone was due to the time limit of our interviewee as well as the dis-tance to the particular office. The length of the interviews ranged from 29-50minutes with an average duration of approximately 41 minutes.

In the appendix in section 9, one can find a rough outline of the interview ques-tions. The questions were prepared prior to every meeting in order to tweakthe questions to fit the professional area of the interviewee. Depending on theanswer of the interviewee follow-up questions were asked when deemed appro-priate and will not be presented in detail since they were case-specific. Thesefollow-up questions were asked in the situations where we needed clarificationof statements or when trying to get the interviewee to expand a thought ortopic deemed relevant to our project. The interviews were semi-constructed inorder to gain qualitative data to answer our research question. Since we hadless knowledge than the interviewees in the area the semi-constructed interviewsgave us the opportunity to shape the conversation (Blomqvist and Hallin, 2015).This way of conducting interviews commensurate with the exploratory nature ofthe research question, and was particularly chosen to let the interviewees voicetheir opinions and understand what they think is important and how certainthings are perceived in the industry.

Theory and findings from the interviews were compared in order to show align-ments or discrepancies of our interviewees arguments with relevant theory. Inthe analysis these alignments and discrepancies are presented. In order to in-crease the reliability of our interviews we took precautions and ensured to keepan open mind and objective attitude (Cohen et al., 2013). Hence, we as re-searchers gave ourselves the opportunity to assess the problem with as littlebias as possible. Further, our analysis of the interviews did not start untilwe had conducted several interviews as we did not want any early findings toimpact interviews conducted later in the process. By using this approach, weensured to keep an open and objective approach during the interviews, avoidingany attempts to confirm early interview findings with findings later on in theinterview process (Cohen et al., 2013).

5.2.3 Data Procession and Analysing

In the beginning of each interview, we asked for permission to record, whichwas granted by all interviewees. When the interviews were done they were im-mediately transcribed, a time consuming moment but rather straightforward

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since we had the permission from every single interviewee to record the conver-sation. This was done in order to not lose any information or create misleadingcitations. Further, when transcribing, noise and irrelevant topics that werediscussed not contributing to any further question or insight were removed.

When all interviews had been conducted and the finalising of the transcrib-ing part was done we summarised the interviews and removed any redundan-cies such as topics not really related to the thesis. To stay independent andmake sure that we did not leave any important information out or misun-derstood it, both authors of this thesis individually summarised and analysedthe transcribed interviews. To get an overview of the summary we structuredour findings into topics and outlined important information and the intervie-wees thoughts where possible. The topics that we chose reflects the differentcategories of which this thesis treat, namely green investments, sustainability,behaviour and policies.

We decided not to label any quote of the interviewees, even though none ofthe interviewees explicitly asked to be anonymous. The reason for this is thatour personal view of the interviewees is that they were reluctant to share theirabsolute thoughts, even though we encouraged them to do so in the beginning ofeach interview by ensuring that the answers are to be presented in an anonymousway. Hence, throughout this thesis interviewees are labelled as ”IntervieweeA” to ensure anonymity. The role of the interviewees is outlined earlier inthe Method section in order to give the reader a better understanding of theperspective of which the answer comes from. Most of our interviews were heldin Swedish, however, during one of the interviews there was a switch to Englishdue to that an interviewee that joined the interview cold not answer in Swedish(but the particular person understood Swedish). Hence, most of the quotesfound in this thesis are translated by us, the authors, from Swedish to English.

5.3 Reliability and Validity

Conducting research in a proper way is very important. A good foundationto this is to maintain the reliability and validity in the research. Reliabilitycan, in short, be described as authors performing research in the right way(Blomkvist and Hallin, 2015). The description of validity is to ensure that theresearch addresses the right thing (Collins and Hussey, 2014). High reliabilitytogether with high validity enhances the replicability of the work, which impliesthat coming researchers and authors can replicate our work and derive similarresults (Collins and Hussey, 2014).

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By splitting validity and reliability into sub-groups one can assure high relia-bility and validity (Trochim, 2007). The split of these and their implicationsare found below.

Internal validity

The first sub-group treats the casual relationship between variables and resultsand this group is referred to as internal validity. Problems with internal va-lidity generally arise in qualitative studies, as opposed to a quantitative study(Collins and Hussey, 2014). This is due to that the result could be biased bythe researchers due to own observations and interpretation on information re-ceived. To address this problem, triangulation of data and theory was used,which Heale and Forbes (2013) mean increase the internal validity. Triangu-lation was used since our empirical findings were compared with findings incontemporary literature to ensure internal validity. Further, by analysing allfindings ourselves before comparing with each other as researchers adds anotherlayer of triangulation to the thesis.

Construct validity

To what extent a test measures the initial intended subject is defined as con-struct validity. There is a risk that imperfections in the construct validity ariseduring semi-structured interviews since there is a possibility to let the intervie-wees depart from the initial question (Collins and Hussey, 2014). Hence we werevery carefully and clear that our research approach had a red thread throughoutthe thesis, which works as a remedy for the potential problem with constructvalidity. The questions used in the semi-structured interviews were constructedto be as non-leading and objective as possible to further counteract any imper-fections. To further strengthen the construct validity, we used probes duringour interviews in order to ensure that the interviewee answered the question.Also, as stated earlier, we applied data triangulation which further enhancesthe construct validity.

External validity

The definition of external validity is how applicable results are in general, moreprecise if the results are applicable to areas that are broader than the investi-gated area (Collins and Hussey, 2014). Since we chose to limit our study to onlyhandle the Swedish market, it is obvious that the results obtained in this thesiswill be somewhat constraint to that area. In order to make the results gener-ally applicable we compare the results obtained with other areas of research, ofwhich potential conclusions might be drawn in order to cover these topics. Tokeep in mind is that the approach of using interviews in order to gain empiricaldata will yield analytical generalisations rather than statistical generalisations

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(Eisenhardt, 1989). The implication of this is that the generalisations cannotbe applied to a larger population.

Reliability

Inherently repeatable results is the definition of reliability. This means thatother researchers should be able to derive the same results based on our methodand data that we obtained. However, since we use semi-structured interviews,it might be hard to obtain the same data and hence it would be difficult to getthe same results. The replicability of this type of study tends to be rather low(Collins and Hussey, 2014) as the nature of the answers are not binary sincethey are subject to interpretations and individual thoughts. Hence, to increasethe reliability of our study, we have been very transparent in the sources wehave used, how the interviews have been conducted as well as we have listedthe interview questions in the end. By being this transparent we give otherresearchers a great possibility to replicate our study (Blomkvist and Hallin,2015). Since we utilise academic literature that are primarily from renownedjournals, the reliability of our thesis is strengthened according to Eisenhardt(1989).

5.4 Ethics and Sustainability

Throughout the project we took various measures in order to ensure that ethi-cal standards during interviews and in the analysis were upheld and conductedaccordingly. Since the thesis were written on behalf of our commissioner Nas-daq, and that we are conducting research at KTH simultaneously, any situationthat could lead to conflict of interest were written down and remembered.

In every interview we asked the interviewee for permission to record the con-versation. In addition to this, all interviewees were offered the possibility to beanonymous in the beginning of the interview. When deemed appropriate, wehave also left out sensitive information and statements. Since the interviewswere conducted in an informal setting, statements and information have beenevaluated thereafter and by the researchers been put in the right context. Allinterviewees were informed by Nasdaq’s involvement in our initial contact aswell as in the beginning of each interview. The initial contact email can befound in the appendix, however, some variations were made in order to fit thecontacted person. We made Nasdaq’s involvement clear from the beginning inorder to avoid potential interest of conflict between our commissioner and theinterviewee. We deemed it appropriate to share this information in the begin-ning to be transparent, however, this may have affected the acceptance rate ofthe interview requests.

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In order to maintain the integrity of the interviewees, the researchers have beenextra careful in order to not extrapolate any conclusions or thoughts from read-ing between the lines in the conversation with the interviewee. On this manner,answers that were not explicitly stated is not included in the conclusions. Inthis report the empirical data and conclusions are aggregated and the emphasisis on commonalities.

Since the topic of this thesis is not controversial ethical aspects have not been aproblem to deal with. The interviewees had in general no wish of being anony-mous, and we reached an adequate number of interviewees without problem,despite loss of potential acceptances. An issue that we found was the asym-metry between the product owners and the ones that represent the privateinvestors in the matter of which instruments to put focus in order to enhancegreen investments. We have dealt with this by shedding light on this asymme-try in the discussion section where we put these two groups against each other.Since there is a potential value to different stakeholders in this specific area,our commissioner found that there was no need for secrecy.

The tripartite notions of sustainability defined by Gimenez et al. (2012) wasused in order to evaluate our thesis. All three parts: Sustainability, Economicand Social, was addressed since they all fall within the scope of the thesis. Inparticular, this thesis somewhat touches upon the Economic and Social partwhen discussing the green investments, which further affects the sustainabilityof the financial markets as well as the sustainable environmental changes theworld faces. This thesis will hence help addressing these areas and give a betterunderstanding of the market and how it can be enhanced and built up in orderto promote green investments in the retail sector.

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6 Result and Analysis

In this section the results and analysis of our findings from the interviews areconnected to the theoretical framework. Challenges found on the green markettoday are presented first. Following this, different market enhancing actions inorder to promote green investments are discussed. Each of the sub-question aredivided into topics relating to the sub-question at hand. In the picture below anoverview of this section is found.

Figure 5: Categories of findings

6.1 Challenges for green investments and their future

In this section, the findings from the interviews regarding the challenges forgreen instruments and future outlooks for the market are presented. The sectionis divided into sub-sections discussing different topics and touches upon how apotential change could enhance the market. All of our interviewees, weatherit is product specialists, savings economist or C-level management, agree onthat there are both advantages and disadvantages with green products today.However, the advantages are overwhelming and hence most of the intervieweesforesee that these instruments are going to be the norm in the future, and themarket is already experiencing a greater demand of green instruments. Thesection specifically answers the first sub-question, but might interconnect withthe second sub-question’s topic in some sense where appropriate.

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6.1.1 Why change is needed and why the financial industry needsto be a part of the transition to a sustainable society

The environmental change has become more prominent in recent years and alarger part of the population starts to see this as an urgent problem that needsto be solved as soon as possible, else it could be too late. During the secondhalf of 2018 there has been a few reports released that are very alarming, sayingthat we have about 10 years to transform to a sustainable society. This is forexample discussed in UN’s IPCC recently released report, and something thatone of our interviewees discussed:

”If one is to believe the reports that has been released recently, then we havehuge challenges ahead of us. UN’s IPCC report for example, says that we haveapproximately 10 years to transform the society into being sustainable. I hopethat they are wrong since I do not believe we will be able to achieve this transitionin 10 years.” - Interviewee F

This specific example was not brought up in the other interviews, however, allinterviewees agree on that society needs to transform in order to mitigate theclimate risks, and states that this is not only their opinion, rather the opinionof the whole industry. The interviewees raise the concern that if society fails,natural disasters will occur more frequently and have a more disastrous impacton humanity.

In relation to this, all interviewees indicate that the financial industry will playa key role in the transition to a sustainable society, and that the financial sectorcan take various actions in order to do so. One of our interviewees mention thatthe financial industry often acts as a salient in order to develop the society,which the quote below indicates:

”The fact that the bond market is a salient and often leads transformationin society is nothing new. Mandel Madonini, working at Climate Bond Ini-tiative, discuss the fact that major international or domestic challenges hasbeen addressed by raising proceeds in the bond market in order to support thechange. Major infrastructure projects such as the construction of railways hasbeen funded this way.” - Interviewee C

The majority of the other interviewees has a similar reasoning to why the fi-nancial industry needs to be a part of the transition, but express this throughthe opinion that the financial sector has the opportunity to favour green invest-ments. This by investing and allocating capital towards green companies andprojects, resulting in strangled funding of non-sustainable companies, and inthe long-run an elimination of these companies.

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“The hope is that green and sustainable investments will become mainstream,not only talked about as a trend. Today, green and sustainable investments area marginal phenomenon when looking at the total invested capital in the world.The hope however, is that in the future a significantly larger part of the capitalis green and sustainable, and that the green and sustainable instruments andcompanies are mainstream and the non-green and sustainable companies aremarginalised. I am confident we will get there, but I cannot judge the time itwill take.” - Interviewee G

The above stated quote show Interviewee G’s thought of that non green andsustainable companies will be marginalised in the long term. Further, the opin-ion on that this topic is talked about as a trend is something that is sharedamong the other interviewees, but all believe that this is something that is nottransient and hence will become mainstream in the future. However, in orderto become mainstream, our interviewees see an increased need for transparency.They say that people need to understand what they invest in and the impactof their investment.

An important notice on the topic of the financial industries involvement in theneeded change, expressed by Interviewee F is that the financial industry hasthe possibility to lead the transition to green, but because of that it is strictlyregulated it is somewhat constraint from utilising its full potential today sincecorporates are afraid of potential reprisals. So in order for the financial industryto lead and for the market to develop as needed, the government need to beinvolved in leading the change by setting clear targets. The latter is furthersupported by all other interviewees, whom independently of each other and ourquestions, expressed their thoughts on that it would be easier to develop themarket if only regulators could set clear targets.

Analysis

The opinions from our interviewees clearly indicate that change is needed, andit is needed now. The fact that many interviewees indicate that the financialsector acts as a salient in forming the society, shows the importance of a wellfunctioning green financial market. The opinion regarding that the financialindustry will play a key role in the transition is founded in the belief that themarket has the possibility to allocate capital towards the right kind of projectsand corporates. However, as they mention, the transparency will be key in orderto make this happen as it would help investors to understand their investmentsand the impact of it. Further, in order to make this happen current regulatedstate of the market is important to address since our interviewees indicate thatthis is a constraint keeping the financial institutions away from utilising their

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full potential. Moreover, Interviewee G states that the green and sustainablemarket is rather small compared to the ordinary market. Hence, the greenmarket has to grow in order for the green investments to constitute a largerpercentage among retail investors.

6.1.2 Definition problems of green and sustainable investments

According to all out interviewees, a sustainable investment is defined as some-thing that is environmental friendly and supports the creation of a more sustain-able world. It does not necessarily have to be an investment that is CO2 neutralfor example. Many interviewees has a long-term approach when discussing sus-tainability, which Interviewee E expresses through the following quote:

”An investment that can bring benefits and return to the investor, without hav-ing negative long-term consequences for the planet.”

In relation to this topic, some interviewees bring up the need for clear defini-tion set by a higher instance such as the Swedish government or the EU. Theinterviewees mean that a clear definition would lead to less confusion on themarket, and would work as a guideline to many industries, allowing them toadapt their business to the changing world.

The definition of what can be assessed as a green investment is not perfectlyaligned among our interviewees. The majority of the interviewees believe thatdefining an investment as green should imply that the investment contributesto something good for the environment in the long-run, without actually quan-tifying what something good should implicate. Interviewee E is the only inter-viewee who states that a green investment at least must be climate neutral, andfavourably have a positive climate effect, seen from a carbon dioxide emissionpoint of view:

“A green investment is something that does not have a negative impact on theclimate and follows the original principles of risk-reward regarding the potentialvalue increase of the investment. The investment should have a neutral to pos-itive net effect on the carbon dioxide emissions already day one.” - IntervieweeE

The opinion of Interviewee E is not shared among other interviewees whomclaim that being climate neutral when it comes to carbon emission is not nec-essary. They also say that it would be hard to be carbon neutral or positivesince the CO2 cost of developing and producing even environmental friendlywindmills and solar panels are rather big.

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Except for the divided definitions regarding what is green, the majority ofthe interviewees believe that ICMA’s framework, Green Bond Principles, is anefficient tool in order to assess the greenness of a bond as well as it helps issuersin terms of what is expected of them reporting. In relation to the green bondframework, they stress the need for a general framework to follow in order toassess the greenness of a project or company. A few interviewees believe thatall projects that has a positive climate effect relative to “business-as-usual”should be able to obtain green financing. The rest of the interviewees believethat green financing should only be able to be raised by companies that haslong-term sustainable operations, and say that oil companies that want to issuegreen debt should not be able to do so since they are not sustainable in thelong-term.

Analysis

The fact that all interviewees mention the lack of guidelines and frameworkindicates that the market will have to address these topics in the near future.Further, noticeable is the opinions among the interviewees regarding what canbe constituted as green. The majority of the interviewees believe that a com-pany that receives green financing should be sustainable in the long run. Iffor example an oil company can raise green proceeds, there is a risk that thegreen label become insignificant and miss-leading, which eventually results inlow investor confidence in the green market. This since the interviewees believethat an oil company is not long-term sustainable and if such a company has theopportunity to obtain green capital, it would contribute to “green washing”.

Further, the opinion from Interviewee E that green should be defined as some-thing that is climate neutral or climate positive day one, regarding carbonemission, risks to inhibit the development of the green market. This since therewould be few to no projects fulfilling this requirement.

6.1.3 Advantages and disadvantages with green instruments

The most obvious advantage as of today according to our interviewees is thatwhen one invest in green investments, one contributes to a sustainable world.They emphasis that investors gain financial return and contribute to the societyat the same time. The return of these instruments were discussed and theinterviewees agree on that the return of green instruments do not outperformother instrument as of today, but they indicate that they will do so in the future.A good example of this thought is the following quote stated by Interviewee F:

”The investment decision of investing in sustainable products will go from ”feelgood” to ”real good”. This since if you run a business that is not sustainable you

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will either be competed away or ruled out. So you need to have that perspectivein the long run, both as a business and as an investor.” - Interviewee F

Our interviewees mention a couple of disadvantages with green instruments,with the first disadvantage being the definition problem. In connection to thisthought, they raise the concern of low transparency and problems with mea-suring impact. All interviewees agree on this, but they also mention that thereare a lot of fintech companies that try to solve this problem and help investorsfollow their impact.

As mentioned, the market has many definitions of how to classify somethingas green. Investors have so far had a hard time to identify the impact theirgreen investment have on society, but tools that can address this problem isstarting to come to the market and as interviewee G implies, there are manyfintech companies that try to create apps and such in order to help investorssee the impact of their investments in an easy way. This would clearly help themarket to be more transparent, but in order to make these platforms and appsmore accurate, businesses have to take responsibility and make their reportingmore transparent. Today, there are businesses that report, however, it tends tobe only the positive parts and any negative impact is neglected, according tointerviewee G.

The green washing problem is seen as one of the major problems with greeninstruments according to our interviewees. All say that if there are a lot ofgreen projects that turns out to be green washing projects, it risks to damagethe industry and further create barriers for the market to help the society totransit to sustainable.

Some of the interviewees raise a concern that on the market the perceptionthat many have of green instruments is that the investor has to give up yieldwhen investing in these instruments. Something that they mean can be seen inthe green bond market where issuers tend to obtain a few basis points cheaperfinancing. They mention that this is a disadvantage to private investors sincethey obtain lower yield on a certain investment with the same credit risk asregular bonds issued from the same issuer.

Analysis

Given the answers of our interviewees, the disadvantages of the green instru-ments seem to be possible to mitigate by having a framework to follow andintroducing new technologies in order to illustrate the impact of the invest-ment. A clear framework would give guidelines on how to assess something

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as green, and it would preferably demand certain reporting, which would con-tribute to the development of new tools measuring impact. Better reportinghas the opportunity to contribute to more available environmental data, andhence supporting the financial market with symmetric information. Given thatthe investor value sustainability, an efficient market should incorporate this inthe investments (Fama, 1970).

The problem with the lower yield on green bonds today, and the general per-ception in the industry of green investments yielding lower return, is somethingthat has potential to change in the future. If guidelines and measurementsare introduced, it will be easier to price the risk of non-sustainable companies,something that Interviewee F indicates with the quote above. Given this set-ting, there is a potential that the investments will go from “feel good” to “realgood” since in the long-term, investments in non-sustainable corporations willperform bad given that these companies risk to be competed away or ruled outwhen the society transform.

6.1.4 Applicable instruments for green investments seen from a re-tail investor perspective

All interviewees believe that the most probable instrument for private investorsto utilise when investing green are green bond funds. This, Interviewee E says,is due to that funds are the most commonly utilised instrument among retailinvestors, with approximately 80% of the Swedes investing in funds.

Green retail bonds is also an instrument that more than half of the intervieweesdiscuss could potentially be of interest to private investors. However, they raisethe concern of the lack of knowledge among investors, as well as the few availablegreen retail bonds on the market (only one issued by Advanced Soltech) asbarriers for this asset to gain attention.

A few of our interviewees discussed structured products as a potential instru-ment that can be utilised by private investors. They point out the positiveaspects of the structured product, which is that at the same time as investinggreen, there is a possibility to customise the features of the structured products,and adapt the characteristics to current market circumstances. Interviewee Eraise one concern with structured products. These products have often impliedhigh and hidden fees. However, the interviewee believes that the instrumentwould be interesting if one could structure it with low fees and high trans-parency.

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Interviewee A and Interviewee B discussed ETP, and more specifically ETFsas instruments that can help support the green investment market among re-tail investors as it would offer additional investment opportunities. The twointerviewees said that there are a lot happening in this market at the moment,but that there is no green ETF on the market yet. The high activity withinthis segment is further confirmed by Interviewee F and refers to recent createdproducts issued by BlackRock and Vanguard that has come to the market.

During the interviews, interviewees were asked on their opinion of green savingaccounts. All interviewees were positive to the creation of such an instru-ment. The majority of the interviewees further say that the majority of Swedessavings are allocated in saving accounts, and if one could create green savingaccounts that allocate funds towards green initiatives, the amount invested ingreen projects would increase. However, drawbacks in line with earlier dis-cussed market barriers, according to the interviewees, is the problems withtransparency and definition. In addition to this they indicate that the supplyside has to be large in order to receive the money from these accounts.

Analysis

The result from the interviewees, indicates that green bond funds is the mostapplicable instrument to retail investors. If one combine the opinions of ourinterviewees with Figure 1, which shows listed green debt on Nasdaq in theNordics, it furthers strengthen the picture of green bond funds as a good in-strument to enhance green investments within the retail sector. This since theincrease in volume will lead to additional green bond funds in the market, whichgives the retail sector additional opportunities to invest in green.

Green retail bonds is a interesting opinion that some of our interviewees raise,however, in order for these instruments to gain more capital the retail sectorwill need more investment opportunities in order to diversify their risk wheninvesting in green retail bonds.

Structured products and ETFs were mentioned as possible instruments to en-hance the green investment market. Given the opinions of our interviewees,these should be seen as important to the market, not because there are manyinvestors utilising these instruments, but because of that the interviewees seethat all products that can be created in connection with some green value giveadditional investment opportunities to retail investors and give them the op-portunity to customise their own product.

Given that the market continue to develop and more green projects need fi-nancing, the creation of green savings accounts could be of interest to financial

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institutions according to our interviews. However, this seem to be an instrumentto introduce to the market at a later stage, when the supply is larger.

6.2 Promoting green investments

How to promote green investments will be presented in this section. The re-sults will be based on data gathered from the interviews and where applicableconnected to relevant studies and theories presented in the theory section. Theauthors have chosen to analyse a few relevant subsidies to the case, as well astax relief incentives and long term political guidance. The analysis will discusseach methods relevance and efficiency in regards to the Swedish green financialmarket.

6.2.1 Do retail investors value sustainability, and what is the ratio-nale behind retail investors investment decision?

Some of our interviewees say there is an increased interest for sustainable in-vestments among private investors. However, the interviewees say that this donot necessarily mean that investors act on their preferences, something thatInterviewee E, with particularly good insight in the retail sector, state by thefollowing:

”There are considerably a lot more retail investors who say it is important withsustainability and want to invest, than actually act on their investments basedon their preferences.”

Interviewee F, indicates that the increased interest in sustainable instrumentsis mainly attributed to Millennials and the litterateur study points to the sameevidence, where both Morgan Stanley Wealth Management (2017) and Waltre(2018) indicates that Millennials value sustainability. The increased interest insustainability is further fortified by Hartzman and Sussman (2018), however,this study examines investors in general and no particular age group of investors.

Analysis

Given that the majority of the retail investors say they value sustainability,one could think that the amount invested in sustainable instruments wouldconstitute a significant part of the investor’s portfolio. However, this is notthe case according to Interviewee E, which through the quote above states thatinvestors do not act on their investments based on their preferences. Therecould be numerous of reasons to this, and given the general discussions withthe interviewees, this could partly be attributed to the rather few green andsustainable instruments that the retail sector have the opportunity to invest

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in. This fact, together with already discussed problem with transparency andimpact measurements, seem to be the main reason to the behaviour.

Given the present-aim standard of rationality within rational choice theory, onecan find an argument to why investors fail to invest in sustainable products.Since the utility of an investor whom value financial return and sustainabilityis maximised through tangible measures on these variables, one can understandthat investor’s do not choose these investments since it is almost impossible togain tangible measures on the impact. By the introduction of tools that canmeasure impact, these investors would be given the opportunity to invest insustainable products as their utility would be able to be maximised.

Another possible explanation of investors not allocating more capital in sustain-able instruments could be attributed to irrationality among individuals whenmaking an investment decision, as described in behavioural economics. Thetheory further describe that individuals have problem to choose long-term in-vestments over short-term investments with positive outcomes, even if it isobvious that the long-term investments would lead to better outcomes (Kaplanet al., 2013). One could find some foundation as to argue for that sustainableinvestment will outperform non-sustainable investments in the long-run, butthese investments need to perform at least on par with non-sustainable invest-ments also in the short-term in order for investors to choose these investments.

6.2.2 Long-term common goals for the industry (politics)

All interviewees say that there is a need for clear policies and general targetsfor the society set by the government, other than the current initiatives andguidelines regarding sustainability reporting as they are deemed insufficient.Interviewee G and Interviewee H both discuss the projected 4-6 degree pro-jected raise in temperature, and pitch the idea of a 2 degree target that thesociety could strive for. In connection with these comments, the intervieweesagain stress the need for one framework to follow, and states the idea to havea general framework to assess green and sustainable companies and projects.Interviewee B say that long-term goals and a rigorous framework would help fi-nancial institutions in their work towards creating new products and mitigatingthe risk of green washing.

Analysis

The interviewees states that a potential long-term goal would be good for themarket in general, however, this kind of incentive would not directly affectprivate investor’s appetite to invest in green and sustainable products. Never-theless, such a target from the government would allow for product innovation

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within the financial sector, since the financial institutions would be able tocreate new products aligned with, and fulfilling these targets. This would ulti-mately lead to more products created benefiting the retail investors by offeringthem more environmental friendly products to invest in. Given that the govern-ment take this action to enhance the market, it is important that the objectivesand targets set are ambitious, but yet realistic and time-bound in order to beeffective (OECD, 2015).

6.2.3 Subsidies

When it comes to enhancing the green financial market, the government coulduse different types of subsidies in order to develop the market and address cur-rent market failures and barriers. These could be structured to be both direct orindirect, and effect the demand side directly, or indirectly by subsidising greenprojects and initiatives, and as the authors have found, subsidising the under-lying market for financial technology that supports the development of a greenfinancial market. The fact that the sheer supply of green projects today is notmeeting the demand for green projects, as expressed by Interviewee F, is kind ofcounter-intuitive to what the research question of this project implies, but greeninvestments have so far been driven by institutions and private participationon the market will be important to bring about a sustainable transformationaccording to Regeringskansliet (2018). As for the Swedish market and previousexamples of governmental intervention, tax programs have been used to affectprivate investors in previous cases, but there are few examples besides this ofsubsidy programs on the Swedish market which directly were intended to affecta certain groups’ investment appetite.

Innovation in corporations and the financial system will be crucial to removehinders for the development of the general green financial market and hindersthat keeps private investors away from the green financial market (BankingEnvironment Initiative, 2017; Woodhead, 2011). As for governmental reliefto support innovation in fintech that can address the current market’s lack oftransparency and address the existence of asymmetric information, programsshould be structured to support disruptive innovation that can bring supportivetechnology tools to the market, according some of our interviewees. The litera-ture further discuss the need for governmental intervention to affect investmentsin the crucial seed stage of innovation projects. The need for support in earlystages is also discussed by one of our interviewees, whom says the following:

”Since larger banks has restrictions in actions they take and which companiesthey may support, it is hard for banks to give the financial support to fintechcompanies in the early stages since their business model is hard to classify and

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the risk is just too high. This has disadvantaged the early-stage fintech sectorand companies that actually have great ideas. We can work as their mentorsand give them support that way, but they would need some kind of funding fromthe government to scale their business” - Interviewee G

Olmos et al. (2012) suggest that the best use of governmental subsidies wouldbe, although expensive, implementations of direct grants to innovation projects,alternatively complemented by interest-free loans. Miller (2013) also discuss theuse of direct matching grants and support the use of challenge funds when thereis a risk of inefficient allocation of capital and funding of non-valid projects.

Further, according to Miller (2013), partial credit risk guarantees is a widelyused instrument throughout financial markets and it has often been used topush lending to new sectors and riskier borrowers. Partial risk guarantees hasalso beneficial attributes when used on a market characteristics by significantentry barriers. Similar to Omos et al. (2012), and Miller (2013), Walker et al.(2018) see that direct subsidies would bring the biggest value to entrepreneurs,but since it is expensive for the government, it should be considered to becomplemented by tax relief programs and co-investing schemes, in order tomaximise value to both investors and entrepreneurs.

Mazzucato and Penna (2016) further stress the importance of cooperation be-tween government, institutions and private sector and the need for active in-volvement, support and evaluation to bring about innovation transformation.In their study they also suggest the Brazilian government to take on a braverapproach when supporting positive impact projects.

There is also a gap in knowledge that needs to be addressed in the Swedish re-tail sector. The overall knowledge of green financial products and there possibleimpact is generally very low. Also, there is a need to underline how a collectedgreen push through the financial system can led the sustainable transformationswe need to see in business. According to interviewee E and interviewee G, thisknowledge gap could be dealt with through educating the market. Further, thegeneral lack of trust among the retail investors in the financial institutions andtheir sustainability work could also be dealt with through education accordingto Interviewee G. Existing litterateur lacks good examples of subsidies used toeducate investors on a financial market, but evidence of a somewhat similar pro-gram that aimed to educate a group of individuals in sustainable developmentin India can be found and can be argued to have been successful (Alexandarand Poyyamoli, 2014).

Further, our interviewees are aligned when it comes to subsidies on the Swedishmarket, and that both subsidies towards fintech and other corporates as well as

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subsidies directed directly towards the retail sector are of interest. In general,as mentioned, they see that supporting green fintech that increase transparencyon the market would help attract the retail sector by making green investmentsless complex. Regarding subsidies towards the private sector, Interviewee Araise the concern that there is a possibility that a subsidy would be somewhatcaptured by intermediates such as banks, whom add some extra charge or fea-ture to the product, making the investor not gaining the whole subsidy. But ifa subsidy could be made in a clean and transparent way this is a good opportu-nity. However, the interviewee believe that good marketing could compensateany eventual help from the government. This has its foundation in the fact thatthe interviewee does believe that investors only need to look at the climate wehave outdoors and understand that something must be done. Moreover, the in-terviewee believe that with the help of good marketing and by pushing productsto the investors, retail investors would be more likely to invest in sustainableproducts.

Interviewee E asks for subsidies directed directly to the private investors, whichin the interviewees opinion could be through the creation of a green pensionsavings account. The reason to this is the fact that the most of the Swedessavings are found in pension funds, and that a subsidy in this area would yieldthe most positive increase in green and sustainable investing. Interviewee Falso discussed subsidies towards the retail sector and believe that it might be agood idea, but points out that the problem with this market in general is thatthere are too few green projects and opportunities to invest in, which affects thesupply towards the investors. The interviewee raises the question if it would notbe better to direct the subsidies towards the supply side, to support an increasein investment friendly green projects and initiatives. Interviewee F says thatsubsidies towards certain fintech companies, working on making the impact ofthe investment more transparent, would enhance the market since it would givethe investors tools to monitor their contribution.

Analysis

Regarding motivating the use of subsidies to affect the retail sectors partic-ipation on the Swedish financial market, both failure to incorporate negativeexternalities in green investments and the argument for market failure are valid.The market has a hard time to price bad sustainable behaviour, and correctlybenefit good sustainable behaviour, and prices today can not be considered toreflect all relevant information regarding impact. Most investors seem to valuesustainability, but the market is inefficient in getting correct and valid infor-mation to investors regarding project’s and corporation’s impact on society.Further, the market is inefficient to sustainable data and the investors desire

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to choose green. Efficient market theory, given the market-pull behaviour forgreen solutions, imply a free capital flow to positive impact projects if markethinders are removed (Walker et al., 2018).

As mentioned the interviewees see the possibility of directing subsidies towardsthe green fintech market in order to attract the retail sector, and a topic in thediscussed literature is that direct grants would bring the most value to inno-vation projects in general. Many interviewees see that fintech tools can helpaddress the markets failure in addressing transparency, asymmetric informa-tion, and fully incorporating negative externalities into the price of investments.However, one should be aware of that these programs have a high risk of usinggovernment funds inefficiently. Challenge funds construct an attractive fundingstructure in order to utilise the benefits of direct grants without taking on thisfull risk of inefficient allocation of resources. Moreover, taking into account thatInterviewee G discussed the difficulties for Swedish banks to financially supportearly-stage start-ups in fintech, it could also be relevant for governments to usesome sort of credit risk guarantee instruments. This in order to give incentiveto banks to lend money to riskier green fintech enterprises, by taking on partof the risk for default. Consequently, the benefits of such programs would alsobe that Swedish banks would participate in the development of green solutionsfor the finical system.

Moreover, educational programs seem to be an interesting alternative to helpaddress the markets transparency issues and issues in regards to the lack of trustin the system, if one can figure out how to implement such program given thatthere are few previous examples of these impact education programs, especiallyon financial markets. But given the possibility to fill a clearly identified gap inknowledge and trust, the government should be inspired by the idea to educatethe market. The case study of the environmental education program in Indiacannot be regarded as relevant in guiding the government in how to structuresuch program, but the success could work as an inspiration to analyse a possibleimplementation of subsidies directed towards educational efforts. Lastly, forthe green market to attract as much private funding as possible, it would beinteresting to reach private funds currently allocated in pension saving accountsand ordinary saving accounts with a possible subsidy.

6.2.4 Taxation

Some of our interviewees believe that a tax relief would be a suitable instrumentto enhance the green market. Interviewee E believe that a tax relief programwould have a strong signalling value, which the interviewee believe is neededin order to get private investors to choose green instruments. Interviewee A

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also believe that it would be positive, but discuss the case of inefficiency inregard to the use of tax money and said that, if considered, the programs needto be structured such that the banks would not be allowed to benefit morethan the investors or take any value from the contribution to a more greensociety. Interviewee A’s thought on inefficient use of tax money is supportedby literature, that also discuss the concerns regarding that tax program maybenefit the bigger banks more than the intended investor group (Lindqvist S.,2009; Ohlin, 2009; Strandberg, 2011; Berglund, 2015), and hence not be aseffective to incorporate negative externalities into the price of the investmentas intended. Given this, the Swedish financial market has although been verysusceptible to tax relief programs that aims to get private investors to allocatetheir money in new saving forms and the Dutch example shows evidence ofcontributing to real green impact in the country.

Analysis

Given private investors reaction to previous tax incentives on the market, thesignalling value such a program would most likely provide is needed on the greenfinancial market in order to nudge the investors towards these instruments, asexpressed by Interviewee E. Investors have a tendency to stick to the status quobias if they are not provided with a financial incentive to change their behaviour(Mullainathan and Thaler, 2000), hence a tax relief program could give theseindividuals financial incentive to chose green investments.

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7 General Discussion

In the following section the authors of this report discuss the analysis aboveand tie together the sub-questions of this report. The discussion contains cross-sectional findings from the sub-questions, which are discussed in relation to thetheoretical framework.

7.1 The future and the challenges for green instruments

It is important that the market for green products is built with robustnessin order to allow the market to become mainstream. This includes the rightinstruments available to the investors, work on pushing the instruments to theinvestors, help them understand the mechanisms of the instrument, and in atransparent and easy way show the investor the impact of their investment.

The authors find that most interviewees see the future of the green and sus-tainable instrument as very bright. An opinion that is further strengthenedwhen looking at the listed green volume on Nasdaq in the Nordics, seen inFigure 1. But there are obstacles to overcome. Except for challenges with aunited framework, need for government guidance and transparency, corporateswill face challenges in their potential transition to green and sustainable. Theshort-term behaviour, as indicated by the literature and further supported byInterviewee F, explains this. According to literature, this behaviour puts pres-sure on management and corporates to deliver quarterly earnings, resulting inthat implementing sustainability into capital decisions and strategic planningis quite hard. This makes companies choosing other investments and strategiesthat have clear short term benefits, and miss out on the long term positive netpresent value of the considered decision.

During this project it has become obvious that the market is transforming (seeFigure 1 and Figure 2), but in order to make it develop even further and releasethe potential of it there are things that needs to be done. But the investorsand financial institutions will not be able to achieve the needed change on theirown. The authors see that a vital action that needs to be taken is one thatconcerns the government, and further that the government also needs to takelead in the needed change. With a common goal and with the need for societyto mitigate the climate risk one could guess and hope for that the market isaligned and is working together in order to reach the goal of a green societyand a green financial system. Further, besides the signalling value governmentalinvolvement would imply, by taking lead the government could guide the marketby setting guidelines which would help the regulated financial market to fullyaddress the climate change.

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To further help the market and give investors the opportunity to include thepossible impact of their investment in the investment decision, it is important towork on transparency. Discussed in the interviews is the fact that investors, asof today, cannot obtain the complete picture of their investment’s impact on theenvironment, and hence this additional positive effect is often neglected whenmaking investment decisions. Moreover, it seems as if investors do value greeninvestments according to our interviewees and literature. The rationale behindthat there are few of these that say they value sustainability whom actuallyinvest in it can be referred to the lack of transparency in the instruments aswell as there are rather few investment opportunities compared to ”ordinary”investments. The problem with few instruments to invest in is something thatthe interviewees believe will be solved over time since more corporate transit togreen and sustainable. The problem with the transparency of the investmentshowever, needs to be solved in order to give the market the best opportunityto grow.

Millennials, that Waltre (2018) and the article from Morgan Stanley WealthManagement (2017) mentions, would gladly invest in green products as theyvalue both financial growth and sustainability. An investment in green instru-ments however, is less likely to happen due to the fact that there is no easy wayto measure the impact on the environment of their investment, and hence theobjective of knowing how much and in what way one contribute to the envi-ronment cannot be fulfilled. Further, the asymmetry in information regardinggreen impact in the current market can be argued to make the market inefficientsince the investors, who seem to value sustainability, cannot take this data intoaccount when making investment decisions, hence green values is not priced(Fama, 1970).

Green investments need to offer tangible evidence of impact of a possible in-vestment already in the decision making stage in order to somehow bridge thisgap. Hence, subsidising fintech companies that makes the investments moretransparent and add some defined value to the sustainability parameter wouldbe favourable since the investors would then be able to maximise their util-ity. This would eventually enhance the number of total investments in greenproducts from the retail sector.

7.2 Promoting green investments

Most of our interviewees as well as the reviewed theory indicate that in order forthe market to fully realise its potential and involve the retail investors, it needsome kind of incentives in order to change investor’s behaviour (Thorgeirssonand Kawachi, 2013). This since the market can be argued to be inhibited by

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transparency issues, asymmetric information, non-included externalities and ageneral lack of trust in the financial system. Further the financial system canbe argued to be ineffective to change and support the sustainable transition,and investors tend to stick to the status quo bias (Mullainathan and Thaler,2000).

Given the above, the authors see governmental involvement as essential to getthe green financial market in line with what is needed to support a sustainablesociety. The investors value the environment but the financial system is not fittoday to allow investors to incorporate green as a standard in their portfoliosor saving accounts.

Mazzuacto and Penna (2016) discuss how governments needs to be braver whenimplementing society beneficial programs and the authors see that it is crucialfor Swedish government to be brave in order for the sustainable transformationto be completed before it is too late. With this said, the authors of course seethat the Swedish government needs to do some due-diligence and weigh the costof policy programs with expected impact in order to efficiently allocate capital.

As mentioned, arguments can be made of subsidising the supply and demandside directly. With this said there is an exciting opportunity in supporting theintermediary market and the creation of a more retail sector attractive greenmarket, without interfering with demand-supply mechanisms. Active supportof innovation in green fintech could achieve this. The private investors todayexperience the green market to be to complex and non-transparent and most ofthe interviewees has the opinion that green fintech has the possibility of fillingthis gap.

Since the fintech market is characterised by barriers to grow beyond the en-trepreneurial stage, and the focus for the green financial market concerns incor-porating externalities to society into investments, one effective solution to keepthe governmental cost down while feeding a competitive climate for innovation,would be to set up the earlier discussed challenge funds. These funds shouldstrictly fund projects that would not survive or achieve possible impact with-out support from the government. This would keep the cost down compared totraditional direct grants but still give the most value to the relevant projects(Miller, 2013).

Further, Interviewee G explicitly expressed the opinion that banks should beable to fund smaller green start-ups directly through loans, but as it is todaybigger banks are unable to lend money to smaller companies with diffuse andnon-traditional business models because of the related credit risk. Here the

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authors also see a possibility for the government to give banks credit risk guar-antees when targeting the green fintech start-ups, to give banks incentive andfreedom to get more involved in green innovation and hence more involved inthe green transformation. Governmental programs like these that mobilise theSwedish banks would take advantage of the expertise and competitive knowl-edge of these institutions that could be vital to support innovation in fintech.But more importantly the incentives would bring about cooperation betweengovernment, financial institutions and eventually private investors which Maz-zucato and Penna (2016) believe is needed to achieve a major impact transfor-mation. Mazzucato and Penna (2016), Olmos et al (2012) as well as Walker etal (2018) and Interviewee G all express concerns regarding seed stage fundingof innovation projects addressing green impact. The authors believe that ifthe Swedish government choose to support the intermediary market, the effortsshould be to first and foremost support the early stages of the innovation cyclein order to support disruptive technology that can achieve transformation.

The major concern with supporting innovation in green fintech would be theuncertainty in time it would take for good products to reach the market. Ac-cording to Interviewee G, it is hard to know if green fintech that can addresstransparency issues and information asymmetry will be good in two years or tenyears. It is also hard to know when companies’ reported data on green impact(positive and negative) will be complete and reliant enough to support theseproducts. One needs to be sceptical of the quality of the data given companiesreluctance today, to report bad sustainable behaviour.

As mentioned in the analysis, the Swedish government also has a possibility toachieve impact by addressing the gap in knowledge among the stakeholders onthe green financial market. For the investors, besides the sheer lack in technicalknowledge when it comes to possibilities to connect investment instruments toreal green contribution, Interviewee G also mentions that there is a lack of trustfor the sustainability efforts among the banks in Sweden. The authors see thatboth these gaps needs to be dealt with in order for green products to becomemainstream investment alternatives to private investors. The authors would liketo see that the government considers, setting up free education programs close tothe market directed towards current investors, including green finance as a topicin relevant course work from elementary school and upward, and using existinggovernmental educational channels as an alternative to subsidising educationto reach out to private investors as efficiently as possible.

A previously discussed topic on implementations of subsidies aiming to achievepositive impact has been the need for governments to be brave. For the Swedish

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government to implement educational programs this would be vital, since thereis also limited data on the success of previous programs. The clear upside of sub-sidising education would be that it would be relatively cheap compared to somealternatives and interviewee G mentions that green investments have the possi-bility, if the audience is given the knowledge, to attract investors that previouslyhave been reluctant to invest their money in the financial market. Finally, asthe authors have concluded earlier in this report, most people value sustainabil-ity, and given the Swedish financial market’s need and private investors interestto learn, pushing agencies to educate stakeholder through financial aid couldmobilise responsible investors.

Further the authors see that a complement to subsidising education, would beto use the existing educational channels, as the Swedish financial institution,Finansinstitutet, partnering programs (Pengalabbet, Livet och pengarna, Kollpa cashen, Ekonomismart etc) with educational organs in the country thatpromotes private finances (FI, 2018). Including green investing and savingin the curriculum of these programs would be a cost-efficient complement toeducate a wide range of audience.

Expressed throughout this report is that in order to increase privately fundedgreen projects and initiatives the market needs to see an increased supplyof green investment opportunities, otherwise existing investment objects willmainly see lower yield opportunities as a product of increased demand. Be-cause of this one of the Interviewees, as mentioned, raised the question if itwould not be better to focus governmental resources aimed towards the retailsector, towards the supply side instead, to give companies further incentives tobecome green. The interviewees identifies the lack of green investment oppor-tunities as a bottle-neck for further development, but in line with traditionalsubsidy theory, believe that subsidies directed toward the demand side, directlyor indirectly, also can be expected to have spillover effect to the supply side.

The authors believe that one of the easiest instruments to motivate for theSwedish government would be to use a tax relief program to attract privateinvestors, since these programs have proven to be successful to affect the invest-ment behaviour among private investors (Larsson, 2013). The Dutch examplealso prove that tax incentives on green savings accounts and incentives relatedto green funds is an effective way to mobilise green funding from the privatesector. Further the green tax program has proven to be a good incentive forbanks to become more socially responsible. However, the authors see that it isnecessary to structure these programs such that the investors benefit the most,and hence avoid an outcome where the banks collect the biggest surplus. Such

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scenario could also undermine the trust private investors have for the bankingsystem. This need to be dealt with care in order for the green market to grow,as well as using the government budget efficiently.

Further, to bear in mind when implementing subsidies is that such programsare rather expensive to the government and that in order to subside the greeninvestment market, the government would most likely need to raise other taxesin order to afford the subsidy. Further, one can question if the potential sizeof the green investment market within the retail sector is large enough to ac-tually make sense to subsidise. Since it is not very big it may be deemed tobe ineffective to target any subsidies towards this specific part of the market.Instead, one may consider to put emphasis on institutional capital that has abigger potential to impact society given the sheer size of the investments. Butregardless where a potential subsidy ends up and the design of the subsidy, ithas a strong signalling value.

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8 Conclusion

The Conclusion is the final chapter of this thesis and in this section conclu-sions and answers to the research question is presented. The answer to theresearch question is given with help of the sub-questions. Recommendations inorder to enhance green and sustainable investments within the retail sector isgiven, which are based on our literature review, as well as the findings from theempirical research conducted. After the outlining of our recommendation, weconclude the thesis by outlining our suggestions on future research.

8.1 Connection to Research Question

Identifying ways of enhancing the retail sector’s investment in green financialproducts has been the aim of this thesis. In order to carry out this researchthe authors have done an extensive literature review and interviewed 8 financeindustry professionals. Further, the authors have attended a 2-day sustain-ability conference hosted by Nasdaq (called TBLI) as well as participated inNasdaq Advisory Board in order to obtain further knowledge. The main re-search question listed below has been used in order to achieve the aim of thethesis.

How can green financial investments be enhanced within the Swedish retail sec-tor?

To help the authors answer the research question, two sub-questions have beenused. This to gain valuable information and insight on parts of the researchquestion, and by, combining the two sub-questions being able to derive ananswer.

Sub-question 1: What are the challenges for green investments and what do thefuture look like?

The empirical data gathered from the interviews gave good insight in whatstakeholders of the market see as challenges and what they think of the futureof green investments. With foundation in this one could argue for challenges inthe market that different stakeholders need to solve.

First of all, the government will have to set clear sustainability targets to adhereto. In relation to this, a united framework on how to assess green, and what kindof reporting is needed from the corporates’ in relation to the green instrument isalso something that would develop the market in the sense that it contributes togreater transparency. These two proposals would unite the stakeholders of the

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financial market and make it easier to create new products to offer. However,the problem of making the investments transparent and in an easy way illustratethe impact of the investment is an area that needs to be developed in order toattract and entertain retail investors.

The will to invest in sustainable instruments is clearly something that has de-veloped in recent years. However, there are a lot more investors who say theywant to invest in sustainable instruments than actually do it. This could partlybe attributed to the problem of not seeing the impact of the investment, whichneeds to be seen in order to fulfil the investors own objectives. One can arguefor that increased transparency and the illustration of the investments impactwill help maximise individuals’ utility of an investment since the sustainabilityvariable would be measurable. To solve this the authors believe that fintechcompanies will have to come up with solutions that larger financial institutionscan use, since these institutions operate under strict regulations and by suchfind it challenging to create and use certain tools and databases they have.

The future for green investments look promising according to our interviewees.The opinion of a bright future for these instruments are further strengthen bylooking at the total volume of listed green debt on Nasdaq in the Nordics, andthe penetration of green bonds on the bond market in this geographical area(seen in Figure 1 and Figure 2 respectively). This development is expectedto further continue according to our interviewees, whom mentions that the in-creased attention the environment receives will also add to the positive outlooksof green debt. The stakeholders however, mention that the development seenis mainly attributed to institutional investors. So if the retail investor segmentcould to join and support this development, the market would be further en-hanced as more capital can be allocated toward these kind of investments, aswell as it is a statement towards the market that it needs to take this subjectseriously.

Sub-question 2: Which are the possible ways of promoting green investments tothe retail sector?

Based on that all interviewees are positive to subsidies on the green financialmarket, one could argue that the market seems aligned in that governmentalsupport is essential. However, to which stakeholder group the effort should bedirected towards is harder to determine. By looking at the current state ofthe market and define the bottle-necks there are, the first subsidy from thegovernment should end up being directed towards fintech companies that helpdevelop tools to measure and illustrate the impact of the investment. Throughthis, the most prominent problem of the market regarding transparency and

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trust for that the investments actually make a difference would be solved. Thisin turn would allow the retail investors whom value the sustainable part of theinvestment, to fulfil their objectives by having concrete data on the impact ofthe investment.

In the thesis several subsidies directed towards the fintech market has beendiscussed. The authors find that given current barriers in the fintech sector,setting up challenge funds, that distributes matching grants to competitiveprojects, to be of particular interest. The motivation for this is that it wouldoffer a cost efficient alternative to the effective traditional grants that couldsupport the creation of a transparent market place that attracts the averageprivate investor. The authors also find that credit risk guarantees would beeffective in order to help the Swedish banks to get involved in risky early stageinnovation in fintech. Complemented by investor attractive, but expensive taxprograms and subsidised education directed towards the market place as well asthe Swedish school system, the authors see that the green market has supportthat could speed up the transition to a sustainable financial system.

Further, marketing and education of the green market is discussed as efficientways of enhancing the retail investors invested volume in the green market bythe interviewees. Marketing would help push the instruments to the investors aswell as raising awareness, creating a larger demand on these products and henceputting pressure on corporates to become green and sustainable. This couldbe done in various ways, with the common factor being the fact that it wouldmost likely be a cheap and easy way to reach the majority of the investors.For example by using the financial institutions social media. Education wouldcontribute to the understanding of the importance of this topic and the role thatthe financial industry plays in the transition. Further, education can be usedin order to raise the knowledge of financial instruments which would make theinvestor feel more comfortable as they would obtain greater knowledge of howcertain instruments work and what the risk with the instrument is. Resultingin increased trust in the financial system. Supporting education of the marketwill also help investors to better understand the complex nature of the market,which could address some of the issues with transparency.

8.2 Recommendation

The authors see that there are vital actions that needs to be taken in orderto enhance the green investments in the retail sector. But to get the privateinvestors involved and enhance the amount of allocated capital into these kindof instruments, the market needs to be more mature. In order to best help thismarket, the authors would like to see a standardised framework together with

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long-term sustainability goals set by the government. This would be positive tothe market in the way that it would align businesses as well as it would createopportunities to product innovation, leading to that the retail sector has a lotmore opportunities to invest in green instrument compared to today.

To further support the market the authors propose subsidies towards the fintechsector, more specifically relief programs targeted towards innovative fintech so-lutions that could increase investors’ abilities to follow impact on investments,or initiatives that can help developing the green financial market in other as-pects. The authors find that retail investors do value sustainability, and believethat these programs supporting innovation in fintech could support a moreretail friendly market place and create a market that is more compliant to be-havioural hinders among private investors that keep them from using currentgreen market. The authors also propose subsidies towards educational programsthat could focus on filling the gap in knowledge on the green financial market,regarding contribution, available instruments and related risk-returns relationsof these investments. These programs should also empathise trust in the systemand green contribution. The authors also believe that tax incentives targetingfunds and eventually saving accounts can be crucial for the development of themarket, but this only if the government can structure it in a way that keepsthe bank from benefiting the most from the programs.

8.3 Future Research

During this thesis we have found several interesting areas for future research,which are summarised below:

• We find that there is a need of a standardised framework to evaluate aninvestment a green. A topic that future research can include is how thisframework should be structured.

• From our interviews, it is obvious that government involvement in differ-ent settings are interesting. Further research could be designed to inves-tigate how to direct subsidies in order to enhance the number of greenprojects.

• An interesting aspect would be to look at the possibility to price green-house gases in Sweden, and how a potential carbon tax or similar wouldaffect the risk of certain businesses in the long run.

• We would like to see further research on how investors preference wouldchange if one could easily measure the impact an investment has on theclimate.

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• A solid research on all outstanding green debt in Sweden on how theyhave been priced and performed relative non-green issued debt that hasthe same risk.

• Conduct a research on a potential green savings account and how suchan invention should be designed and what needs to be considered from abank/institution point of view.

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10 Appendix

In this section the interview questions as well as the initial e-mail are outlined,both in the original Swedish version as well as a translated version in English.

10.1 Interview questions

1. Vad anser ni ar en hallbar investering?

2. Vad anser ni ar en gron investering?

3. Hur ser du pa grona investeringar?

4. Vad finns det for for- respektive nackdelar med gront sparande?

5. Hur ser marknaden ut for grona placeringar?

6. Vad skulle behovas for att fa privata sparare att spara gront?

7. Vilka produkter tror du ar mest lampade for gront sparande?

8. Vilken/vilka produkter finns det storst potential i for Retail-segment?

9. Vad ar den storsta utmaningen for grona produkter?

10. Hur ser framtiden ut for grona investeringar? Finns det nagot som kanandra synen pa detta?

11. Vilken roll kan grona sparkonton spela i detta?

12. Kan [”Namn pa Foretaget”] spela en roll i transformationen mot grontsparande? Och i sa fall, pa vilket satt?

13. Om man ser bortom vad institutioner och bolag kan gora for att framjagront, finns det nagot annat som du tror kan bidra till att privata spararevaljer gront?

14. Kan staten hjalpa till att framja gront sparande och pa sa satt hur?

15. Det finns en utredning som regeringen gor som heter 2018:75, vilket artankt att undersoka om skattelattnader och subventioner kan bidra tillokat gront sparande. Hur ser du pa statlig inblandning? Vad finns det forfor respektive nackdelar med att staten gar in och styr? Skulle det kunnahamma marknaden langsiktigt och ge motsatt effekt?

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Translated version:

1. What do you think is a sustainable investment?

2. What do you think is a green investment?

3. How do you view green investments?

4. What are the advantages and disadvantages of green savings?

5. What does the green market look like today?

6. What would be needed to get private investors to invest in green?

7. What products do you think are most suitable for green savings?

8. Which products have the biggest potential in the Retail segment?

9. What is the biggest challenge for green investments?

10. What does the future look like for green investments? Is there anythingthat can change your view of this?

11. What role can green savings accounts have?

12. Can [”Name of Company”] play a role in the transformation towards greensavings? And if so, in what way?

13. If you look beyond what institutions and companies can do to promotegreen, is there anything else that you think can help private investors tochoose green?

14. Can the state help promote green savings? And if so, how?

15. There is an investigation that the government calls 2018: 75, which issupposed to investigate whether tax breaks and subsidies can contributeto increased green savings. How do you look at government involvement?What are the disadvantages of the government entering and managing?Could it slow down the market in the long term and give the oppositeeffect?

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10.2 Initial e-mail

Hej AAA,

Mitt namn ar Gustaf Erlandsson och jag laser sista aret pa Industriell Ekonomipa KTH. Anledningen till att jag skriver till dig ar for att jag, tillsammansmed min kollega Anton Wahlstedt, skriver ett examensarbete tillsammans medNasdaq i host och vi skulle garna intervjua dig for vi tror att du sitter pakompetent input till det vi haller pa med.

Vart arbete syftar till att undersoka tillvagagangssatt for att framja gront in-vesterande bland privata sparare. Vi har darfor som mal att samla informationfran olika intressenter pa den finansiella marknaden som pa ett eller annat sattkan bidra med input till vart arbete. En potentiell intervju skulle bland annatbehandla hur du ser pa gront sparande och vad som kan goras for att framjadenna marknad.

Om du har tid skulle det vara valdigt kul att ses for en kortare intervju! Horav dig om du har nagra funderingar kring ovanstaende.

Tack pa forhand!Vanliga halsningar,Gustaf Erlandsson

Translated version:

Hello AAA,

My name is Gustaf Erlandsson and I am in my final year of the IndustrialEngineering and Management program at KTH. The reason I am writing toyou is because I, together with my colleague Anton Wahlstedt, write a degreeproject with Nasdaq this fall and we would like to interview you because webelieve you can contribute with competent input to our thesis.

Our work aims at investigating approaches to enhancing green investment amongprivate investors. We therefore aim to gather information from various stake-holders in the financial market that can in some way contribute input to ourwork. A potential interview would, among other things, consider how you lookat green investments and what can be done to promote this market.

If you have time, it would be very fun to see you for a short interview! If youhave any thoughts about the above, please let me know.

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Thanks in advance!Sincerely,Gustaf Erlandsson

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