Sustainable Finance in the Danish Financial Sector: An Investigation of What the Epistemological Differences between Finance and Sustainability Mean for Sustainable Finance

Abstract

Sustainability is getting much attention, and companies have to adjust to this focus to become sustainable and socially responsible. Finance has adapted to this sustainability focus as well, and sustainable investments are perceived beneficial not only to sustainability but also to generate a financial return. The purpose of this master’s thesis is to get an understanding of how epistemological differences between finance and sustainability may impact the incorporation of sustainability in financial practices. Especially with a focus on the Danish financial sector and their use of sustainability tools such as ESG-ratings, negative screening and active ownership. The thesis will also examine how the Danish financial sector perceives its responsibility and what role sustainability plays in that perception. Finally, explore the EU Taxonomy´s influence in sustainable activities and how it might resolve the complexity in sustainable finance. This research is based on interviews conducted with six representatives from the Danish financial sector, three pension funds and three investment banks. All of the respondents were part of their company’s sustainable investment department and had specialist knowledge of how the Danish financial sector works with sustainability. The interviews are analysed using a theoretical foundation based on Thomas Lagoarde-Segot and his outline of the epistemologies prevalent in finance and sustainability. These differences are most significant when it comes to the social context of actions, where financial epistemology concentrates on the empirical observation that can be generalised. In contrast, sustainability epistemology is concerned with an action relative to time and space. The interviews showed that the Danish financial sector places sustainability highly regarding their responsibilities but still below their primary responsibility; financial returns. They have, however, spend much focus on sustainability and take part in promoting sustainability through their investments. Sustainability is integrated into their practices and is considered throughout their portfolios and with increased attention in their specific sustainability portfolios. The results suggest that some sustainability aspects are not accounted for in the way sustainable finance is practised in the Danish financial sector due to epistemological differences between sustainability and finance. There seems to be a lack of frameworks the financial sector can use as guidelines for implementing sustainability in their financial practices.