A History of Scandinavian Socially Responsible Investing
Elias Bengtsson
ABSTRACT.This
article contributes to the literature
on national varieties of socially responsible investment (SRI)by demonstrating how Scandinavian SRI developed from the 60s and https://www.doczj.com/doc/3a18642896.html,bining
findings insights from research
article accounts
role of
norms,
practices spread,and how
to suit their
the article draws
investors act as
periods,and
how rule systems of varying insights gained are useful with advancing commonalities of national the reasons underlying change,institutional sys-positive screening,responsible socially responsible investing (SRI)
ABBREVIATIONS:ATP:pension;BIC:Best in responsibility;GPF:Government pension fund;Organization;KLP:Kommunal LO:Landsorganisationen;NGO:organization;OECD:Organization for Economic Co-operation and Development;PKA:Pensionskassernes Administration;SRI:Socially respon-sible investing;UN:United Nations;UNCED:United Nations Conference on Environment and Development;UN-PRI:United Nations Principles of Responsible Investment
Introduction
This article seeks to contribute to the understanding of national idiosyncratic socially responsible investing
(SRI)by focusing on the historical of Scandinavian SRI.Although the true essence of SRI is (cf.Cowton,1994;Louche,has that the concept the integration and ethical criteria into tradition by using both nega-tive and (cf.Cowton,1999;Sparkes,2001).It is that SRI includes activism upon shares (Ward,the use of engagement to in?uence ethical and environmental performance (Eurosif,2004).
SRI is often claimed to have emerged in the US during the 70s and early 80s as a consequence of concern for non-economic motives (Brown,1998;O’Barr and Conley,1992;Vogel,1983).Following an increased recognition of how ethical,environ-mental and social performance affect ?nancial values,SRI spread across the world in the late 80s and had become a global practice by the early 2000s (Sparkes,2002).
However,there are two caveats in this portrayal of SRI developments.As will be demonstrated in this article,SRI cannot neither unambiguously be claimed to stem from the US,nor is the practice homogenized across the world.In spite of the caused it to differ extensively both in practice and principle in different countries and continents (cf.Louche and Lydenberg,2006;Louche,2004).
Although there are several studies covering national and regional varieties of SRI (cf.Louche and Lydenberg 2006;Eurosif,2003,2006),very few have studied Scandinavian varieties of SRI.1More importantly,SRI research in general and research on Scandinavian SRI in particular,suffers from a ten-dency to describe or map SRI,rather than providing
Journal of Business Ethics (2008)82:969–983óSpringer 2007
DOI 10.1007/s10551-007-9606-y
explanations to comparative differences over time and geographical units(cf.Lozano et al.,2006, Louche and Lydenberg,2006etc).2
As a consequence of this knowledge-gap on his-torical developments and reasons for comparative differences in SRI,this article seeks to provide an understanding of why SRI displays signi?cant idio-syncrasies in its national manifestations.This is accomplished by investigating the historical devel-opment of Scandinavian SRI.The focus is on the dual transformation process of actors’adaptation to contextual changes on the one hand,and their roles as institutional entrepreneurs and creators of insti-tutional contexts on the other.
The article is based on a case approach study, using data on Scandinavian SRI and wider societal changes since the1960s and onwards.Data was gathered from interviews,annual reports,prior re-search,press releases,fund reports,governmental investigations,Non-governmental organizations’(NGO)reports and newspaper articles.
The article is outlined as follows:First,theoret-ical perspectives on institutional change and the role of actors in that process are discussed,including prior research on SRI within this theoretical per-spective.Second,the development of Scandinavian SRI is presented and analyzed,structured along to four signi?cant phases of development from the1960s and onwards.Thereafter,the article is concluded with a discussion on the wider implica-tions of the results on future SRI research,and the understanding of institutional idiosyncrasies and change.
Institutions,institutional change and SRI Research on comparative national varieties of SRI is a?eld that has attracted considerable attention (Eurosif,2006,2004).However,theoretical inter-pretations of such differences are still rare.Louche and Lydenberg(2006)show that differences in EU and US approaches to SRI can be explained by variations in the role played by governments and public conceptions of sustainability.Similarly,Loz-ano et al.(2006)emphasized how contextual con-ditions in?uenced the shaping of SRI in Spain. These studies demonstrate that contextual differ-ences and the role played by various actors(such as investors,NGOs or governmental representatives) are important in explaining varieties of SRI. However,less emphasis is given to the dynamics over time between contexts and actors.
Sparkes(2001)and Brown(1998)focused more on such dynamics by investigating the role of churches in the historical development of SRI. These studies demonstrate how SRI was in?uenced by changes in religious values,and shifted from a moral to an increasingly social concern during the 80s.Schwartz(2003)also showed how SRI devel-oped from being religiously based,to increasingly concern environmental,geopolitical and democratic issues.Changes in values,norms and culture have also been used to explain the growth of SRI (McCann et al.,2003),as has the introduction of sustainable market indexes(Lozano et al.,2006; Louche and Lydenberg,2006;Sjo¨stro¨m,2004). These above studies,thus,demonstrate that SRI changes over time;behaviour and preferences of actors are altered in a process that is induced by changes in societal values,norms and overall culture. Institutional theory(cf.DiMaggio and Powell,1991) is a frequently used framework to provide explana-tions of how actors’preferences,behaviour and practices are shaped by their surrounding context, rather than being based on rational calculations of bene?ts and costs.In?uence is exerted through institutions that are formal,normative or cultural. Hence,institutions include formal law and regula-tion,as well as informal elements,such as social values and norms,or taken-for-granted conceptions of society and reality.Consequently,institutions exert their in?uence through a mixture of coercive, normative and cognitive mechanisms.Actors,such as individuals or organizations,gain legitimacy by adapting their practices and justify their actions by either explicit or implicit reference to such social institutions(Scott,1995).
Institutional theory has frequently been criticized for emphasizing stability and resilience of social systems(for example nations,industries or organi-zations),and neglecting dynamics and change(cf. Djelic and Quack,2003).Indeed,the predominant explanations provided by institutional theory are focussed on systemic resilience to change(cf.Hall and Soskice,2001;Whitley,1999Meyer and Rowan,1991).Another theoretical strand,however, emphasizes how global institutional in?uences induce
970Elias Bengtsson
convergence and conformity among institutional contexts(Meyer and Rowan,1991).Thus,institu-tional theory has mainly advanced the understanding of systemic resilience to change,or how certain institutional in?uences may trickle down from higher to lower societal scales and thereby create homogeneity across social systems and behaviour of actors.
These above discussed SRI studies(cf.Schwartz, 2003;McCann et al.,2003)demonstrate how changes in societal institutions,such as increasing concern for environmental and social issues,led to an increase in SRI and re?ned practices of the SRI investors.Moreover,many of the above SRI studies also show how this process of change is resulting from various actors interacting.For instance,the role played by churches and altered public perceptions were causing subsequent changes in the investment objectives and practices of investors,demonstrating the dynamics in how both institutions and practice change(cf.Sparkes,2001;Brown,1998).Thus, prior research on SRI has showed that changes in the surrounding institutional context affect the devel-opment of SRI.
Another frequent accusation thrown at institu-tional theory concerns its failure to properly address conscious choice and the ability of actors to neglect institutional in?uences and alter existing practices or concepts according to their own will.Indeed,al-though many of the above-mentioned SRI studies explains how investors alter their practices and objectives as a result of changes in contextual values and norms,the role of investors or other actors as agents of institutional change is given little attention. This shortcoming is due to the deterministic per-spective adopted in these studies.However,the work by Boxenbaum and Gond(2006)is an exception.By drawing upon the literature on translation theory (Sahlin-Andersson,1996)and institutional strategies (Oliver,1991;Seo and Creed,2002),the authors focus on how the global concept of SRI was trans-formed through an adaptation process as the practice spread to France and Canada in the early2000s.For instance,a pioneer Canadian SRI provider down-played the potential pro?t generating aspect of SRI, instead emphasizing its social gains.This made SRI more adapted to the surrounding community’s adversity towards pro?ts and the concept of a liberal pro?t-seeking market economy.
Boxenbaum and Gond emphasize how actors adapt practices to their speci?c contexts,thus indi-cating institutional change through actors’adapta-tion.The underlying logic is that actors may adapt or translate institutions by adding or removing elements to them,in order to create compatibility with their existing institutional context(cf.Casper and Hanke′, 1999;Boxenbaum and Gond,2006).
Yet,in Boxenbaum and Gond’s study and in theories of translation and institutional strategies, institutional in?uence is still conceptualized as a top-down mechanism,out of the investors’control. Consequently,the study does not show how the investors invent novel institutional practices that subsequently spread within and beyond their present organizational?eld.Nor does it provide any expla-nation of the origin of SRI as such.Hence,the emergence of institutional sources(i.e.the origin of novel ideas,concepts or practices)is beyond the scope of translation and the institutional strategies literature.
This article seeks to draw on advances made in the above-mentioned research on SRI,but simulta-neously addressing the shortcomings of institutional theory in its application on SRI.Therefore,the article adopts a novel approach to explain the development of SRI,where a two-way relationship between actors and institutions is described.Insti-tutions are portrayed as structuring actions and preferences,but individuals and organizations can also invent or recombine institutional elements and innovate practices and principles.These may in turn become institutionalized,both at the actor’s societal level but also trickle up-and downwards,and spread over institutional contexts(cf.Djelic and Quack, 2003).Consequently,actors are institutional recipi-ents,but simultaneously institutional sources. Therefore,in this article,institutional systems are modelled as multilayered and in the making,shaping the behaviour of embedded actors,but simulta-neously being shaped by them.
The predominant concern of the present article is, therefore,to investigate how SRI has spread,be-come transformed and adapted to institutional con-texts by investors and other actors.The explanations focus on how SRI has developed,as a result of society wide cultural changes,by changes in formal regulatory frameworks,and the altered routines and practices of actors.
A History of Scandinavian Socially Responsible Investing971
Therefore,the theoretical framework goes be-yond prior research on SRI based on institutional theory in the following respect:it allows explana-tions of SRI development to include the role of actors in inventing novel institutional practices.This also means that the emergence of institutional sources is within the scope of the explanatory framework.
Since SRI is a phenomena that stretches over several societal scales(such as the company,industry, national or global level),Scandinavian SRI is investigated at the organizational?eld-level.An organizational?eld is de?ned as a recognized area of institutional life,constituted by aggregate of orga-nizations(DiMaggio and Powell,1983).Conse-quently,the remainder of this article focuses on changes in institutional contexts,and corresponding actions and interactions between asset owners and managers,governmental actors and NGOs,public and occupational pension funds,and SRI service providers.
Table I provides an overview of the historical development of Scandinavian SRI.The subsequent section presents a description of how Scandinavian
TABLE I
A timeline of signi?cant SRI events in Scandinavia
Year Signi?cant event
1965AktieAnsvar Aktiefond established by the Temperance movement and the Baptist Church.
1980Church of Sweden and Robur’s launches Svenska Kyrkans va¨rdepappersfond.
1988Carlson WWF-fund established.First Scandinavian environmental/BIC-fund.
1989Vesta sets up Milj?invest and Gr?nt Norge,?rst two Norwegian environmental BIC-funds
1991Opplysningsvesenets fond adopts ethical guidelines.
1992GES-Investment Services(then CaringCompany)introduces environmental(and subsequently ethical) screening for Scandinavian investors.
1993Banco launches ethical charity funds.
1995Robur establishes an ethical council
1995Storebrand sets up an SRI Department
1997PKA,as?rst Danish investor,mainstreams SRI.
1998Alm Invest launches the?rst Danish environmental fund.
1999Storebrand’s environmental fund adopts principles on human rights developed in cooperation with Human Rights Watch and Amnesty,and established the Red Cross fund.
1999Sparinvest sets up?rst Danish non-environmental ethical fund.
1999Swedish KPA launches four ethical funds.
2001Banco sets up an ethical council in Norway.
2001Swedish Robur introduces screening on human and labour rights abuse.
2001Storebrand mainstreams SRI across all equity investments.
2001Swedish national pension funds,Ap-fonderna,were legally bound to take ethical issues into account in their asset management.
2001Environmental fund Norway,a public pension fund,is established.
2002KLP?rst Norwegian pensions provider mainstreams SRI,as do?rst Swedish pensions providers Folksam and KPA.
2002First disclosed Scandinavian divestiture by GPF.
2002Church of Sweden reforms ethical guidelines to include conventions on speci?c weapons.
2003Church of Norway reforms ethical guidelines to include conventions on speci?c weapons.
2004GPF reforms ethical guidelines,emphasizes engagement and sets up the Ethical Council.
2004Danish ATP-act in effect,emphasizing ethical considerations in asset management.
2004Swedish Robur and Banco introduces negative criteria on pornography.
2006GES Investment Services launches SIX/GES Ethical Index.
2006PRI is co-developed by GPF,and endorsed across Scandinavia.
Source:Various sources(see article text).
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SRI emerged,and how its elements were translated and adopted to the Scandinavian wider institutional context.The presentation focuses on how ideas trickle down and become contextualized by actors,but also on how novel ideas,elements and re-combinations trickled up from being local prac-tices to spread to higher and wider institutional contexts.
Development of Scandinavian SRI
60s to80s:Emergence of Scandinavian SRI Contrary to popular belief(cf.Boxenbaum and Gond,2006),the emergence of SRI was not con-?ned to developments in the US during late60s and 70s.In Sweden,the?rst ethical investment fund, AktieAnsvar Aktiefond,was established as early as 1965by the Temperance movement and the dis-senting Baptist movements(AktieAnsvar,2007). These organizations’core ethical values were re-?ected in the investment pro?le of the fund:Alcohol producers were excluded,as were producers of armament,?rearms and tobacco(Kreander et al., 2003).AktieAnsvar Aktiefond is claimed to be the oldest ethical fund open to the public(Kreander, 2001).Much alike in many other European coun-tries,religious beliefs thus played an important role in the launching of ethical investments.In the UK, ethical criteria had been considered by Church Commissioners of the Church of England since 1948,and the Methodist Church in the UK set up an ethical fund in1960,although this fund was not open to the general public(cf.Kreander et al.,2003). The Church of Sweden also played an important role in the initialization of SRI in Scandinavia.In 1980,Svenska Kyrkans va¨rdepappersfond was set up through a joint venture with Robur,a large bank-related fund manager(Svenska Kyrkan,2005).This fund was followed by four additional ethical funds that were established by the joint venture during the 80s.These funds’strategy was based on core Chris-tian values,such as respect for human dignity and ideas on trusteeship.The strategy was operationalized relying on negative screening,and emphasized responsibility and self-regulation in alcohol,gam-bling,armament and?rearms industries,in addition to a total ban of tobacco and investments in Apart-heid South Africa(Bjo¨rklund and Persson,2002). Clearly,Scandinavian SRI was built on a foun-dation of institutional elements,rather than a pursuit of economic gains.Following the initialization of SRI by religious organizations,from the mid80s and onwards,private actors took the leading role in Scandinavian SRI development.
Late80s and90s:from environmental niche funds
to broad-based SRI
The late80s and early90s noticed several develop-ments in Scandinavian SRI.One was the develop-ment of environmental niche funds,following heightened media attention in the wake of the Brundtland sustainability report(Kreander,2001). This was coupled with a general environmental consciousness that increasingly replaced legal de-mands as a source of pressure on companies from the 80s and onwards(Naturva?rdsverket,2000). Swedish Carlson Va¨rldsnaturfonden was the?rst Scandinavian environmental fund,established in 1988.The fund used negative environmental screening in its investment process,and donated2% of the yearly return to World Wildlife Foundation. In the following year,two environmental funds were established in Norway:Vesta Gr?nt Norge and Vesta Milj?invest.Both these funds also used nega-tive screening,but were Scandinavian pioneers in their usage of positive screening,or‘‘best in class’’strategies(BIC).This practice reached Sweden shortly afterwards,and BIC spread across the investment https://www.doczj.com/doc/3a18642896.html,¨nsfo¨rsa¨kringar’s BIC Miljo¨-teknikfond was set up in1990,and SEB Miljo¨fond the following year,followed by Banco Svensk Mil-jo¨fond in1994and Robur Miljo¨fond in1997.In 1996,Storebrand,a major Norwegian investor, launched their Scudder Environmental Value Fund, also using a combination of negative screening and BIC.Thus,environmental SRI spread from being a charitable marginal niche practice using negative screening,to become a common practice involving BIC.The development was triggered by advances in the international?eld and a wider societal accep-tance and demand for environmental products. However,the?rst Danish environmental fund was
A History of Scandinavian Socially Responsible Investing973
not established until1999by Alm Invest(Lassen, 2000).
Following the developments in environmental SRI,another trend emerged in Scandinavia:a wider de?nition of SRI and the introduction of ethical screening criteria beyond environmental concerns.A signi?cant event in this development was the establishment of Norwegian Opplysningsvesenets Fond in1991,managing investment for the Church of Norway.The fund established ethical guidelines preventing holdings in the pornographic,armament,?rearms,tobacco and alcohol industries(Opplys-ningsvesenet,2003a).
Shortly after,from1993and onwards,Banco set up a number of charity funds as a response to pres-sures from major charitable organizations within their client base.These funds donated an annual percentage of the total assets managed,in addition to relying on a range of different negative screening criteria.Different funds with different pro?les were established,one fund donating to environmental causes and another to humanitarian organizations (Solheim,2000).Another example is the previously mentioned Storebrand Scudder Environmental Value Fund,which also extended their negative screening criteria in1999to include United Nations (UN)human rights conventions.The development of the new principles took place through coopera-tion with Amnesty and Human Rights Watch(Guay et al.,2004).This meant that,in addition to the initial environmental negative screening and BIC, further criteria on human rights were included (Storebrand,2007).
Storebrand also set up the fund Norges R?de Kors Global in1999.Donations consisting of half the management fee were given to Norwegian Red Cross,which meant that none of the bene?ciaries’assets were donated(Solheim,2000).In1999also witnessed the establishment of the?rst Danish non-environmental ethical fund,established by Sparinvest (Lassen,2000).In Sweden,KPA Pension established four ethical funds the same year,combining BIC with negative screening based on health-related, armament and?rearms production criteria(Natur-va?rdsverket,2000).
Another signi?cant development during this period was the shifting role of Danish SRI.As has been indicated,Danish SRI got started quite late, and had some catching up to do,compared to it’s manifestation in the other Scandinavian countries (cf.Nielsen et al.,2003).It has been argued that SRI attracted little attention due to certain Danish cir-cumstances.These ranged from decent track records of Danish?rms,less widespread shareholdings among the public(thus creating no customer pres-sure)and that Danish industrial structure with many small companies implies limited scope for institu-tional investors’potential impact(Klaussen,2000). It was not until in the late1990’s that Danish SRI took off.When it turned out that French oil pro-ducer Total provided substantial?nancial support to the military dictatorship in Burma in1996,many pension funds sold their stock in the company.This attracted considerable media attention,coinciding with a rapid growth in pension fund capital and a debate ensued on how to administer and manage these increasing funds(Sjo¨stro¨m,2004).As a con-sequence,Danish investors emerged from their back stage position to take a lead in Scandinavian devel-opments as SRI was adopted by Danish occupational funds across all their equity investments.In other words,SRI became mainstreamed.In1997,Pen-sionskassernes Administration(PKA)established guidelines including screening along certain indus-tries and international conventions.In1998,most other Danish occupational funds followed(Lassen, 2000;Due and Madsen,2003).
From the developments during the late80s and 90s,several patterns of institutional in?uence are observable:Environmental BIC was developed by a number of minor niche investors during the late eighties,and subsequently spread across the organi-zational?eld and to larger investors.Moreover, negative criteria similar to those adopted by the early Swedish religious funds spread to other categories of investors.This took place in all Scandinavian countries,as private investors adopted negative screening.Banco initiated their negative screening-based funds after pressure from charitable organiza-tions in their client base,whereas Storebrand developed their ethical fund in cooperation with charitable NGOs.Negative screening spread there-after across the organizational?eld,as several other investors launched similar funds.
Thus,these developments demonstrate how SRI spread from minor investors through isomorphism to become widely adopted across the?eld.It also shows how direct in?uence from non-investors put
974Elias Bengtsson
pressure on investors to alter practices.In contrast, Danish SRI took of as a result of a signi?cant event that attracted the interest and criticism of the public, where after SRI spread across occupational pension funds.
However,it is also important to realize that the altered practices also correspond to wider societal changes and signi?cant events during the period.As mentioned,environmentalism took off strongly in Scandinavia in the late80s and90s.In addition,the theoretical concepts of corporate social responsibility (CSR)and performance were turned into practice in the90s.The United Nations Conference on Envi-ronment and Development summit in Rio in1992 boosted a general consciousness of environmental, social and cultural issues(World Business Council for Sustainable Development,2005),followed by increased awareness of the CSR concept(e.g.Post et al.,2002;Welford,2002;Korhonen,2003).3 Towards the end of the90s,CSR had become a frequent issue of debate and discussion in Scandi-navia(SwedWatch,2006a).This coincided with the development of several national and international NGOs with charters in Scandinavia.These NGOs focused both on conduct regarding international conventions in general and CSR-issues.For in-stance,Norwegian corporate watchdog NorWatch was established in1995,and Scandinavian charters of Human rights Watch were launched the same year (Vogel,2005).It is likely that these societal changes provided a fertile ground that facilitated the altered SRI practices of Scandinavian investors.
Early to mid2000s:from niche to mainstream&
the rise of public SRI
In the early to mid2000s,SRI developed from being an attribute of specialized funds of large or niche investors,to become increasingly adopted and mainstreamed by large investors with broad bene?-ciary bases spread across Scandinavia.
In2001,Norwegian Storebrand introduced SRI mainstreaming across all equity investments,which was extended to all asset classes in2005(Storebrand, 2007).This was soon followed by Kommunal Landspensjonskasse(KLP),which adopted main-streaming in2002.KLP represented the?rst pro-vider solely of pension and life insurance to adopt SRI,followed by Swedish Folksam and KPA,who also adopted mainstreaming across their total investment portfolios in2002.Following the example set by their Danish counterparts,main-streaming has since become ubiquitous among insurance and occupational fund providers in Sweden.
During this period,private SRI also underwent a process of sophistication.First,several investors set up speci?c departments providing SRI analysis. Although Storebrand established such a department as early as1995,it was not until late1990s/early 2000s that this organizational feature spread among Scandinavian SRI investors.Second,ethical coun-cils,established to oversee and decide on the appli-cation of SRI principles,became common, following Robur’s ethical council establishment in 1995.Banco set up a similar organizational arrangement in Sweden in1999,and two years later in Norway.This was subsequently adopted by the Norwegian Governmental Pension Fund(GPF), which will be returned to below.Finally,sophisti-cation also resulted from the emergence and increase in the number and quality of SRI service providers during this period.One of these service providers, GES Investment Services,had a speci?c Scandina-vian coverage.
Increased sophistication also took place among non-private investors during the early2000s.The Church of Sweden reformed their ethical guidelines in2002to include screening based on international conventions.This was inspired by Swedish public Sjunde Ap-fonden’s practices(Lundberg,2001)and BIC investments based on companies’management of stakeholder relations and environmental impact (Bjo¨rklund and Persson,2002).
Similarly,the Church of Norway’s original guidelines from1991was considered to not put enough emphasis on ethical issues in comparison to ?nancial returns.By2001,the Church of Norway had noted the advances made in the private sector’s environmental funds,such as Banco and Storebrand (Opplysningsvesenet,2003a).Another source of inspiration was the ethical declaration of the Christian Environmental Network.This resulted in the reformed guidelines of2003,where the initial ethical principles were replaced by a set of exclu-sionary and low tolerance criteria.The exclusionary criteria was extended to cover gambling industries,
A History of Scandinavian Socially Responsible Investing975
and low tolerance was imposed on potential investment companies regarding producers of components to armaments and?rearms,as well as companies with poor corporate governance.In addition,emphasis was also put on the need for balancing?nancial performance and ethical aspects, and positive screening of environmental perfor-mance,environmental technology development and corporate impact on poverty and global health (Opplysningsvesenet,2003b).
Early2000s also saw the rise of SRI among Scandinavian governmental public pension funds, much of which was driven by legislation.On Jan-uary1st2001,the?ve largest state-controlled pen-sion funds in Sweden were forced by law to include environment and ethics in their investment policies and annually report to the government with respect to how they adhered to these(Prop.1999/2000:46). In the consultation process leading up to the gov-ernment bill,the largest Swedish trade union Landsorganisationen(LO),emphasizes the impor-tance of considering international conventions in the investment process.Similarly,three in?uential civil society NGOs also questioned the appropriateness of public investors investing in companies producing tobacco.It was also noted that environmental issues had become more important in the?nancial valua-tion of companies(Ds.1999:38).This resulted in the development of SRI policies by all these investors that emphasized international conventions regarding human,childrens’and labour rights,as well as environmental issues and corruption(Finansutskot-tet,2002).Similarly,large Swedish investors Robur and Banco introduced screening of human and la-bour rights abuse,based on international conven-tions established by UN and the International Labour Organization(ILO).
The public Norwegian Environmental Fund(the precursor of GPF,established in2001)is another example,and was regulated to apply environmental BIC and negative screening from its outset.4The underlying motivation was to not only pursue ?nancial objectives,but also to consider the fact that the fund should be managed bearing future genera-tions in mind.This required a set of ethical princi-ples that needed to be based on normative principles agreed upon by a broad societal consensus,that also were likely to be shared by future generations (NOU,2003:22).
The Norwegian GPF also launched the Com-mission on international law in2001.5The objective was to provide evaluations of whether speci?c investments were in con?ict with Norway’s com-mitment under international law,motivated by Norway’s leading role in the development of such international agreements(NOU,2003:22).As a re-sult of the committee’s work,the fund divested from Singapore Tech in2002,as a consequence of the company’s production of land mines(Governmental Pension Fund–Global2006),and the?rst SRI motivated public divestment was a fact.In the same way,one Swedish public pension fund,Sjunde Ap-fonden,had publicized a list of27companies excluded from investment the previous year(Sjunde Ap-fonden,2002).However,it is not veri?able whether the investor actually held equity in these companies at the time of the publication.
The Danish government,on the other hand,took a backseat approach,and left the development of SRI to be developed and self-regulated by the non-governmental investors(Vallentin,2000).SRI was mainly driven by occupational funds(cf.LPK, 2000),and it was not until2004the Arbejds-markedets Till?gspension(ATP)-Act was estab-lished,provisioning that the board of the public pension fund ATP must strive for adequate security, maintenance of the real value of assets and achieving the highest possible returns when investing,in which ethical considerations were seen as a vital part of the investment process(ATP,2004).
In sum,the early to mid2000s was characterized by a number of developments.One signi?cant development around the turn of the century was that large institutional investors became leaders in SRI development.For instance,when main-streaming was adopted by certain large investors to become a commonplace feature of investment practices,mainstreaming spread across the organi-zational?eld.A similar transfer of practices was observable in the establishment of speci?c SRI departments and ethical councils,which also spread from Storebrand to encompass several large Scan-dinavian investors.Whereas the Church of Sweden played an important role in the establishment of Scandinavian SRI,the development and sophisti-cation of the practice had occurred among private investors.Consequently,when the Church of Norway and Church of Sweden reformed their
976Elias Bengtsson
SRI practices in the early2000s,they looked at the private sector for inspiration.
In the early2000s,coercive isomorphism came to complement mimetic and normative isomor-phism,as legislation forcing public pension funds was introduced in Sweden,Norway and Denmark. Two aspects make this introduction of legal requirement particularly interesting from an insti-tutional perspective;First,in the preparatory works for the governmental bills,normative aspects con-cerning future generations and ethical consider-ations were taken into account when formulating the legal provisions.Second,in both the Swedish and Danish case,the impact on?nancial valuations by ethical aspects was emphasized in the legislative process and subsequent laws.This latter point demonstrates how SRI had developed from purely ethical questions to increasingly concern also non-institutional aspects,such as?nancial value.Thus, similarly to other countries,Scandinavian govern-ments and their imposed legislation became signif-icant drivers of SRI growth in the early2000s(cf. Solomon et al.,2002).
There are several indications of how wider soci-etal changes during this period correspond to the altered practices of Scandinavian SRI investors.For instance,the increased attention on?nancial aspects of SRI took off in a period when performance-oriented risk rhetoric came to overshadow the eth-ical and moral implications of corporate behaviour. Several international corporate misconducts resulting from breakdown of ethics in companies had proven costly for investors(Sklair,2001).Scandinavia was not an exception.For instance,Swedish H&M re-ceived massive negative publicity in the mid90s for using child labour in producing garments,which in turn caused share prices to drop(Rena Kla¨der, 2006).
In addition,the fact that the extent of screening based on international conventions increased,and the?rst public divestiture and exclusions based on such criteria occurred,were probably consequences of wider societal changes.The ILO Declaration on Fundamental Principles and Rights at Work was adopted in1998(ILO,1998),and the resulting in-creased societal and awareness on these issues.In 1998,Amnesty(1998)also issued their Human Rights Principles for Companie s,emphasizing that companies and their shareholder alike have a responsibility towards the wider society.
Mid2000s:governments as SRI leaders and further SRI developments
In the mid2000s,governments and public pension funds continued to play an important role in Scandi-navian SRI.In Norway,a public investigation on ethical guidelines for the GPF was initiated in2002 (NOU2003:22).In this investigation,the long term obligations speci?c to pension funds were empha-sized.For instance,endorsement of sustainable development,de?ned according to the Brundtland commission,was considered an important part of ful?lling these obligations.The investigation also emphasized the importance of shareholder engage-ment as part of SRI,?nding inspiration in large non-Scandinavian institutional investors’urge to the pharmaceutical industry to contribute to combating HIV/Aids in emerging markets.6Furthermore,for-malized negative screening was recommended, drawing on the practices of Norwegian KLP and Swedish Sjunde Ap-fonden.
Following the investigation,the GPF established ethical guidelines in2004,emphasizing the pursuit of sustainable economic return through shareholder engagement,negative screening and divestment. The shareholder engagement component was founded on UN Global Compact and Organization for Economic Co-operation and Development’s (OECD)Guidelines for Multinational Enterprises (StMeld.Nr1Nasjonalbudsjetten,2007).In addi-tion,the Commission on international law was re-placed by the Advisory council on Ethics.Between 2004and2006,18additional companies to the previously mentioned land mine producer Singapore Tech,had been excluded,based on violations of human rights and anti-armament conventions (Governmental Pension Fund–Global,2006).
All but one of the Swedish public pension funds also adopted engagement-based approaches to SRI (Sjunde Ap-fonden exclusively relied on an exclu-sion and divestment strategy to SRI(Sjunde Ap-fonden,2007)).Interestingly,apart from the previously mentioned Sjunde Ap-fonden’s exclu-sions,only three divestment cases were shared
A History of Scandinavian Socially Responsible Investing977
between the other pension funds between2001and 2006(SwedWatch,2006b).In2005,the Swedish national pension funds set up an ethical council similar to that of Norwegian GPF.The collaboration involved monitoring of the funds’investment port-folios regarding violations of international conven-tions,analysis and dialogue with the portfolio companies(IPE,2007).
Although Danish public investor ATP had had SRI principles based on international conventions in place since2001,only one case of divestment oc-curred since–the divestiture of Wal-Mart in2005 based on the company’s violation of international labor conventions(Arbejdsmilj?portalen,2005). During this period,there are clear patterns regarding the role of governments via public pension funds in structuring the national SRI?elds.In Sweden,almost all private SRI investors developed policies that emphasize shareholder engagement and dialogue as the basis for SRI,coupled with pre-investment negative screening.However,since mainstreaming was less common compared to Denmark and Norway,this means that these were mainly niche fund managers or niche funds within larger?nancial conglomerates.Apart from the three previously mentioned divestitures by Swedish na-tional pension funds,there is no clear evidence of any Swedish private divestment in the mid2000s (Bengtsson,2007).
A similar pattern is observable in Denmark. Although mainstreaming developed to include most occupational funds,in Denmark,the role of private investors has been limited.An exception is,how-ever,the divestiture of Toyota by EtikInvest in 2006,based on the company’s violation of interna-tional labor conventions(EtikInvest,2006).
In Norway,a different pattern emerged in the mid 2000s,following the re-organization of ethical guidelines and procedures at the Governmental pension fund.Although KLP(a large municipal occupational fund)had applied pre-investment exclusion and divestment since2002,after the establishing of new ethical guidelines of the Gov-ernmental Pension fund in2004,KLP began apply-ing the recommendations of the GPF Ethical council to their investment analysis and portfolio.Further-more,in2006,shareholder engagement,which previously had not been coupled with SRI,became a priority.Similarly but less overtly,large private investor DnB also disclosed nine identical exclusions to those of GPF,with a decreasing time-lag from three years regarding the Singapore Technologies divestiture,to less than one month regarding Poosang in December2006.By observing the investors’dis-closure regarding these divestitures,it is obvious that exclusions based on violations of international con-ventions dominate Norwegian SRI and that there are very few examples of divestitures of companies other than those initially excluded by GPF.
Another signi?cant development in this period was the altering of common SRI criteria.Between 2000and2006,the common negative criteria on alcohol,tobacco and armament/?rearms produc-tion,were generally extended to increasingly include gambling industries and pornography(cf.Bengtsson, 2007;Folksam,2005;Kreander,2001).International conventions also became more common,and several new conventions were incorporated in the SRI practices of Scandinavian investors.For instance, Church of Norway’s revised ethical guidelines of 2003prohibited holdings in producers of cluster and nuclear bombs,as well as landmines.Storebrand also included criteria on cluster bombs in2003,and land mines and nuclear bombs in2005(Storebrand, 2007),and GPF concentrated their divestitures to cluster bombs in2005and nuclear bombs in2006 (Governmental Pension Fund–Global,2006). Furthermore,from its launch in2000to the mid 2000s,UN Global Compact became endorsed by about half the Scandinavian SRI investors.When its tenth principle on corruption,was added in2005, this also became a common negative criteria of Scandinavian SRI.Similarly,the OECD Guidelines for Multinational Enterprises attracted similar sup-port among Scandinavian SR investors during this period.It is likely that the propensity of Scandina-vian SRI investors’endorsement of international conventions was contingent on the wider context in which the investors were embedded.During this period,Scandinavia(and Norway in particular)be-came a normative entrepreneur and an important institutional source in the areas of peacekeeping, poverty eradication and human rights monitoring (Ingebritsen,2006).
In addition,United Nations Environmental Programme’s Principles for Responsible Investing (UN-PRI)was adopted by several Scandinavian investors(UNPRI,2006).7In fact,UN-PRI was
978Elias Bengtsson
developed partly by the GPF on invitation by the then appointed UN Secretary General Ko?Annan (Halvorsen,2006).Another important event in Scandinavian SRI was the launch of the GES/SIX Ethical index in2006,inspired by its Anglo-Saxon counterparts Dow Jones Sustainability Index and FTSE4Good.The GES/SIX Index simpli?ed the gathering of SRI investment process by excluding companies that violate international conventions on environmental and human rights issues and compa-nies producing armaments,?rearms,tobacco,alco-hol or pornography,as well as the gambling industry. The index also provided a yardstick by which investors could compare the performance of their SRI funds.
The mid2000s were thus characterized by the following:A strengthened role of public pension funds in SRI and an increased importance of engagement as a tool for promoting sound portfolio company practices.The launch of a speci?c Scan-dinavian SRI index also contributed to the increased sophistication and maturing of Scandinavian SRI. The importance and extension of international conventions were also apparent,as was the role of GPF in the actual formation of such conventions.A result of the spread of SRI from niche funds in the 80s to become mainstreamed and adopted by occupational and pension funds in the late90s and early00s,also meant that SRI had become an important investment practice in Scandinavia.As illustration,the assets managed by Scandinavian SRI investors amounted to approximately436billion Euro by end2005(of which GPF accounted for 260billion).This can be contrasted with the overall European SRI assets of1574billion Euro,or the total assets of5623billion Euro managed by SRI and non-SRI insurance companies,fund managers and pension funds in the Euro zone by end2005.8 Discussion
This article has demonstrated how institutional ele-ments in?uenced the development of Scandinavian SRI from the60s and onwards.In order to bridge the current lack of theoretical understanding of the origins and variations of SRI,this concluding dis-cussion seeks to broadly illuminate how institutional forces shape national idiosyncrasies of SRI.In sum,it can be concluded that interrelated explanatory fac-tors are important to understand such idiosyncrasies. First,normative and cognitive isomorphic in?u-ence was shown to shape the development of SRI. Some of these are most accurately described as changes in societal values or norms.For instance,as societal environmentalism grew strong in the late 80s,or concern for international development and corporate social responsibility in the90s,Scandina-vian investors incorporated concern for environ-mental factors or adherence to international conventions in their SRI practices.
In some cases,signi?cant events directly triggered altered SRI practices.When it emerged that Danish occupational funds held shares in Total AS,which were found to support the dictatorship in Burma,a societal debate on the appropriateness of investing in such companies eventually made all the Danish occupational funds adopt SRI practices.Other sig-ni?cant event in?uenced more implicitly by affecting the societal context in which SRI was placed.One example was the UNCED conference in Rio,from which the concept of Sustainable development emerged,and subsequently came to cause increased societal concern for CSR-issues.Another example involved corporate scandals in the early2000s,such as the revelation of H&Ms child labor that demonstrated the impact of inadequate risk management and stakeholder relations on shareholder value.This,in turn,lead to the emergence of a societal risk-perfor-mance oriented rhetoric,which also in?uenced Scandinavian SRI.In fact,the preparatory works of the governmental bills forcing public pension to adopt SRI emphasized the importance of environmental and ethical factors in the valuation of corporations. These legislative documents also demonstrate how coercive isomorphism played an important role in in?uencing the development of Scandinavian SRI. Second,these regulatory requirements also point to the importance of signi?cant actors in determin-ing the development of an organizational?eld. When the legislative documents were formed,sev-eral categories of actors exerted in?uence on their inclusion of SRI elements.For instance,the gov-ernments glanced at both each others regulatory requirements,but also on the practices of various investors,in developing the governmental bills. Moreover,several in?uential NGOs exerted in?u-ence on the legislative processes,and thereby
A History of Scandinavian Socially Responsible Investing979
affecting the subsequent practices of public pension funds.For example,trade unions and civil society NGOs pointed to the importance taking into ac-count various SRI related aspects in the legislative documents.The latter category of actors,NGOs, was also found to in?uence the practices non-public Scandinavian investors and facilitate the adoption and sophistication of SRI.For instance,the Swedish Church coupled with Robur to introduce ethical funds,Amnesty and Human Rights Watch aided in developing SRI practices at Storebrand etc.
This said,the arguably most important form of actor in?uence in Scandinavian SRI was found to be that of mimetic isomorphism between investors in the organizational?eld.This isomorphism took both an implicit and explicit shape.Implicit mimetic isomorphism is indicated by,for instance,the spread of environmental BIC investment across niche investors in across Scandinavian countries,after which larger investors came to adopt the BIC practice.Another example is the mainstreaming of SRI,which spread from the large Norwegian investor Storebrand to most other large Scandinavian investors in the early2000s.
Explicit mimetic isomorphism was also found to be frequent in the development of Scandinavian SRI. For instance,the Swedish public Ap-funds were admittedly inspired by Norwegian GPF in setting up their ethical council.The in?uence had also worked in the opposite direction–When GPF established their negative screening criteria,they were inspired by the corresponding screening practices of Sjunde Ap-fonden.Another example is the following of GPF’s divestments by all other Norwegian SRI investors.It is also reasonable to suspect that regarding the divestment practice,isomorphic pressure has also induced ceremonial adherence to the practice among many investors.Several investors have chosen to stress divestment in their SRI policies,whereas in practice, divestment has been marginal or non-existent.Thus, their concrete actions were decoupled from actual policies.Finally,explicit isomorphism is also obvious in the co-development of UN-PRI by GPF,as the UN-PRI were endorsed shortly afterwards by a number of Scandinavian SRI investors.
Thus,in conclusion,the?ndings on the devel-opment of Scandinavian SRI demonstrate the importance of institutional elements in explaining idiosyncrasies of SRI.Several institutional elements of coercive,normative and cognitive origins were in?uencing the investors,often via other investing or through actors present in the organizational?eld. Thereby,the?ndings verify the conclusion of prior SRI research on the importance of societal devel-opments(cf.McCann et al.,2003;Schwartz,2003) or the signi?cance of other actors(cf.Sparkes,2001, Brown,1998).Some of the institutional elements were present at the national level,whereas other had emerged as global institutions.Consequently,the historical development was somewhat different be-tween the Scandinavian countries,but mimetic in?uences tended to even out differences by implicit or explicit isomorphism.
Clearly,these?ndings demonstrate how institu-tional in?uence induced a degree of homogeneity across the organizational?eld(cf.DiMaggio and Powell,1983;Scott,1995).However,the?ndings also show that investors may discard certain institutional in?uences by engaging in ceremonial conformity. They may also invent novel practices that may trickle up from being local practices to spread to higher and wider institutional contexts.By focussing on this interplay between actors and institutions,both as a structuring but also as a formation process,the?ndings thereby also contribute to the understanding of how institutions are formed,adapted and abandoned,in addition to the wider understanding of origins and development of institutional idiosyncrasies(cf.Casper and Hanke′,1999;Djelic and Quack,2003;etc). Even though establishing of clear-cut chains of events is dif?cult,and that proving causality is not always possible,the development of Scandinavian SRI show how events,societal changes and role of core and other actors shape the practice of SRI. These insights can be used in future research in order to understand the underlying factors that determine national idiosyncrasies in SRI in particular,but also the wider?eld of corporate responsibility in general.
Notes
1Prior research on Scandinavian SRI is con?ned to Klaussen’s(2000)study of Norwegian SRI,Nielsen’s et al.(2003)and Vallentin’s(2000)studies on Danish SRI,and Sjo¨stro¨m’s(2004)brief touch upon SRI in Sweden.For a discussion on the limitations of these studies,see Bengtsson(2007).
980Elias Bengtsson
2Although,McCann et al.(2003)investigates the devel-opment of UK SRI in the light of wider societal changes provides an exception,no such studies exist on neither comparative contexts generally nor Scandinavia.
3In this article,the term investor refers to a?nancial institution managing investments.In cases where the investors act as intermediaries,underlying actual investors are labeled bene?ciaries.
4In2004,the previously mentioned Norwegian Envi-ronmental fund was integrated in the Governmental Petroleum fund,which in turn was reformed to be-come the Governmental Pension Fund in2006(Gov-ernment Pension Fund–Global.2006).
5The United Nations Conference on Environment and Development(UNCED)was held in1992.Several agreements regarding the relationship between sustainable environmental practices and the pursuit of social and socioeconomic development were signed.The Rio Dec-laration that summarizes consensus principles of sustain-able development is the most well-known agreement.
6The Pharmaceutical Shareholders Group,a group of 14global?nancial institutions,proposed a strategy for responding to the risks and opportunities created by the HIV/Aids related public health crisis in emerging mar-kets(Pharmaceutical Shareowners Group,2004).
7These investors are Carlson(Sweden),Folksam (Sweden),Tredje Ap-fonden(Sweden),DnB(Norway), GPF(Norway)and Storebrand(Norway).
8Data based on Eurosif(2006)and Bengtsson(2007).In calculating total European SRI,Eurosif data on Europe excluding Scandinavia was added to Bengtsson’s(2007) data on Scandinavian SRI.Overall,investment funds in the Euro Area managed4791,4billion Euro in assets by end2005,and insurance companies and pension funds held1530,0billion Euro of out which698,4billion were managed by mutual funds,and therefore deducted to avoid double counting(European Central Bank2007).
Acknowledgements
The author wishes to express his gratitude to Letters-tedska Stiftelsen for?nancial support,and to all those who contributed by agreeing to be interviewed.He also wishes to thank Rebecca Rothstein and O¨rjan Teleman for their useful comments on earlier drafts of the article.
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