Value Judgments at the Heart of Green - Specialized Research AI at MIT

Value Judgments at the Heart of Green
Transformation: The Leverage of
Pension Fund Investors

(cid:129)
Monika Berg*

Abstract
As the urgency for green transformation grows, the question of whether ﬁnance capital
can be harnessed to promote green transformation has been raised. Public pension funds
are of particular interest since they are publicly governed, have long-term interest, and are
growing in proportion to the global investment capital. However, transformative change
demands a reprioritization of fundamental values in terms of trade-offs among economic,
environmental, and social ends. This article identiﬁes shifts in value judgments in public
pension fund investments and particularly focuses on the institutional constraints by
which value (re)priorities are resisted by investigating Swedish public pension funds.
While there are signs of environmental embedding of the economy, I also note neutral-
ization of the role and investment strategies of the funds, which has a stabilizing rather
than a transformative function. The neutralization constrains deep green transformation,
which demands politicization of the role of institutional investors.

As global environmental governance is struggling to shift development in a sus-
tainable direction, increasing attention has been given to institutional ﬁnancial
investors as possible agents of green change (Harmes 2011; Spratt 2015).
Whether ﬁnance capital may be harnessed to promote green transformation
has been identiﬁed as a key challenge, given its heightened power in the current
phase of capitalism (Newell 2015, 70). It has been argued that for transforma-
tive change to occur, investors and other ﬁnancial actors need to develop their
practices and norms such that they systematically support stewardship of the
biosphere (Folke et al. 2019). Interest in the potential role of investors in global
environmental change is reﬂected in the debates regarding the role and potential
impact of activist investment, including divestment in fossil fuels (Mangat et al.
2018; Neville 2020; Rimmer 2016) and shareholder engagement strategies
(Lewis and Mackenzie 2000; Profﬁtt and Spicer 2006). Within these debates,

Global Environmental Politics 21:3, August 2021, https://doi.org/10.1162/glep_a_00613
© 2021 by the Massachusetts Institute of Technology. Published under a Creative Commons Attribution 4.0
International (CC BY 4.0) license.

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78 (cid:129) Value Judgments at the Heart of Green Transformation

there is an underlying tension between the economic perspective (are green in-
vestments efﬁcient?), where the market is represented in neutral terms, and the
moral perspective that emphasizes the political nature of investments and the
normative impact of investment strategies. This article focuses on this tension
and how it affects public pension funds, which are run by large-scale, politically
governed institutional investors. Navigating this tension is essential for inves-
tors’ political legitimacy, while the scale of public pension funds grants them
inﬂuence on investment norms through investor initiatives and shareholder net-
works (McAteer and Pulver 2009; Profﬁtt and Spicer 2006).

A basic assumption of this article is that green transformation demands a
reprioritization of fundamental values, i.e., the relations and trade-offs among
economic, environmental, and social values or ends (Meadows 1999). The mag-
nitude of the climate challenge is related to its intrinsic connection to global
capitalism (Eckersley 2004; Paterson 2021). Growth has become the overarching
imperative of national and global politics. Positive social development is gen-
erally considered to be conditional on positive economic development (Farley
2015). Economic growth is believed essential not only for stability and devel-
opment of welfare societies but also for environmental consciousness and green
technological progress. Thus, states, as players in the capitalist system, are
motivated by the imperatives of securing competitive advantage and maintaining
short-term domestic political legitimacy (Hay 1996), which is tightly connected
to material progress (Friedman 2010; Hausknost 2020).

However, the primacy of growth has been contested. In an economy that
continues to grow, the speed of decarbonization must be even greater (Daly
2014; Paterson 2021). The production of new energy infrastructure and new tech-
nologies uses cement and metals, which require energy to produce (Galbraith
2020), and mining, which is associated with environmental risks and impacts
on nature and biodiversity. Some hope technology can solve the climate crisis;
however, decarbonization will also demand signiﬁcantly reduced production
and consumption of energy-using goods and services (Galbraith 2020, 4). Thus,
investments need to be channeled into green technologies, while investments that
aim to expand future production and consumption need to be slowed or halted
(Galbraith 2020). The latter is much more controversial because it challenges
vested state and capital interests, raises questions regarding equal distribution
or fairness, threatens continuous growth (Newell 2015) and requires a shift in
how nature is valued. When considering the potential of public investors to lever-
age green transformation, we should consider the type of transformative change
that it may foster (Paterson 2021; Spratt 2015), which in turn depends on the
extent to which the fundamental value hierarchies among economic, environ-
mental, and social values are contested.

In this article, I explore, ﬁrst, the extent to which value priorities (among
economic and environmental values) are contested and shifting among public
pension fund investors and, second, how the value (re)priorities of public pen-
sion funds are shaped and constrained by institutional factors. First I assess the

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Monika Berg

(cid:129) 79

literature concerning pension fund investors. Then I present a case study of
Swedish public pension funds based on interviews with top management and
leading strategists within the funds, along with documents and governmental
reports. The Swedish public pension funds received new directives in 2019 that
they should give particular attention to promoting sustainable development
and establishing common explicit core values to guide investments and that
their investment management should be exemplary. These directives actualized
the tensions between the economic and political imperatives. By examining
how value priorities are made and justiﬁed, I identify the institutional con-
straints on their transformative potential and the key issues to consider if deep
green transformation is the goal. These institutional constraints are also likely to
be prevalent in other investment funds.

Value Shifts and Transformative Change

At the heart of transformative change is a shift in understanding of values fun-
damental to organization of society, their prioritization, and their relations
(Hall 1993; Meadows 1999). Deep-seated value assumptions are at the heart
of dominant paradigms and are enforced by institutional settings ( Jessop
2010). It is very challenging to question and alter such assumptions once they
have become embedded and taken for granted. These assumptions are upheld
and reproduced by societal institutions and are entrenched in cultures, identities,
and social practices. Opposing views likely face strong resistance due to institu-
tionalized (and thus normalized) practices and vested intellectual, political, and
economic interests ( Jessop 2010), thus encountering ideational path dependency
(Blyth 2002). However, as societies develop, tensions and contradictions within
societal institutions become apparent, particularly during crises, which reveal
weaknesses in the current order (Hay 1999; Standring 2018). Such a rupture in
the dominant discourse opens it to a more substantial critique of core assump-
tions and concealed value judgments of the dominant discourse.

Environmental crises, particularly the climate crisis, have revealed a funda-
mental weakness in the growth-based economic order, which relies on increased
production and consumption. Two fundamental assumptions are increasingly
contested. The ﬁrst is that natural resources are unlimited. This assumption is
not necessarily stated explicitly, but it is an implicit assumption as long as
the limits of natural resources do not shape how markets function and how
growth politics are maintained (Hahnel 2011). It is increasingly clear that our
way of living, consuming, and organizing society overexploits natural resources,
pollutes environments, destabilizes major ecosystems, and risks destabilizing
the Earth’s natural system (Lenton et al. 2019). The second (related) assumption
is that growth as we know it may continue indeﬁnitely. This is particularly trou-
blesome since social development, welfare, and redistribution are generally con-
sidered dependent on economic growth.

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80 (cid:129) Value Judgments at the Heart of Green Transformation

There is now broad agreement that green transformation is needed, at least
rhetorically, but contestation remains over what such transformation entails
(see, e.g., Spratt 2015). For this analysis, I distinguish between shallow and deep
green transformation, where the fundamental difference is whether current value
structures are challenged (cf. Newell 2015). Shallow transformation is based
on technological transformation that targets a shift away from fossil fuels; its
proponents express strong optimism regarding the potential of technical innova-
tions to resolve conﬂicts between environmental and economic concerns through
technical innovation and adaptation. In contrast, proponents of deep transfor-
mation challenge the possibility of green growth based on a transition to renew-
able energy, which neglects the effects of an expanding economy that remains
based on exploiting natural resources (Jackson 2009). To date, technical innova-
tions have not lessened system-level energy use (Alcott 2015). Efﬁciency gains
have led to expanded production, which imply increased use of other natural
resources and, at worst, continued use of fossil fuels, since expanded production
maintains or increases energy demand. Thus, the possibility of decoupling
growth in a consumption-based economy is questioned ( Jackson 2009). The
proponents of deep green transformation consider these tensions to be funda-
mental and irresolvable and seek to reconsider relationships among environ-
ment, economy, and social development. Deep transformation advocates
consider nature the basis for human prosperity and the economic system (Daly
2014; Hahnel 2011). Thus, in this view, the economy is not considered an end in
itself, but a means toward an end. A change in this direction requires a redeﬁni-
tion of prosperity and a ﬂourishing society ( Jackson 2009).

Investment strategies are critical components of both shallow and deep
green transformation (Spratt 2015). Shallow transformation (within market
capitalism) implies an opportunity for ﬁnance to move capital into technologies
and sectors at the right time by giving careful attention to shifting policies and
legislation. In this way, institutional investors may strengthen market signals
and enforce a shift to renewable energy. Deep green transformation implies a
radically different context for ﬁnancial investment and a shift in investment
rationality to weigh environmental and social ends against ﬁnancial goals.

Concealment of Value Judgments
Several processes obscure the value conﬂicts and judgments in modern society,
thereby preventing a shift in value priorities. This does not imply that society
has become more neutral or that the moral dimensions are less prominent in
societal developments, only that mechanisms have downplayed them. One such
factor is how many states have historically been structured through sectorial
organization, in which different values are nurtured through various social, envi-
ronmental, and economic authorities. This ensures that different values are
accounted for (Stewart 2006) but also has the effect of avoiding value conﬂicts
and prioritization. More recently, some states have attempted to mainstream

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Monika Berg

(cid:129) 81

sustainability and make it relevant to a broader set of public organizations
(Wamsler et al. 2014).

The increasingly organized and layered nature of modern societies has also
served to distance the decision-making subject from affected others. This implies
that a person directs the moral impulse (a fundamental human trait, per Bauman)
at agents surrounding herself, such as colleagues, while responsibility for affected
individuals or groups is obstructed (Bauman 1994, 124–125). Thus, professional
cultures and instructions are nurtured, while the moral effects on third parties
tend to be concealed. Organizational rules and institutionalized practices may
serve to guide and train moral judgment, however, institutionalized rules and
practices can also be used to circumvent moral judgments when they supply blue-
prints for decisions (Bauman 1994). Ethical judgments within organizations are
often shaped by the dominant rationale within the ﬁeld, which prioritizes certain
values over others and conﬁnes policy actors to a particular language that neutral-
izes rationality by obscuring value judgments of those within the institution
(Stewart 2006).

Another aspect that obscures value judgments is technocratic discourse, in
which value judgments are immersed in rational calculations (Berg and Lidskog
2018a; Fischer 2009). This tendency is reﬂected also in the objectivistic and
linear knowledge view, which often shapes the science–policy relationship,
and in many environmental knowledge assessments (Berg and Lidskog
2018b). The technocratic approach avoids value judgments by providing a tech-
nical ﬁx and asserting value neutrality. Technocratic discourse is geared toward
shallow green transformation driven by innovation and technical advancement
(and is thereby not neutral). The focus is on greening transportation and produc-
tion processes rather than interfering with them, such as by decreasing demand.
Technocratic discourse is well coupled with economic discourse and the
market rationale that dominates most public spheres and institutions. Sandel
(2012) argues that market reasoning empties public life of moral arguments,
since the heart of market reasoning is a nonjudgmental stance toward values.
Those who consider markets to be value-neutral regard this as a strength that
provides a greater freedom of choice, including moral choices or judgments
(O’Keefe 2004). Kirzner (2004, 96) argues that “the economics of capitalist
prosperity is independent of the particular ethical principles subscribed to by
the participants of a capitalist society.” Thus, value neutrality is the main ethos
(du Gay 2000). However, the neutrality of the market is deceptive. Economic
incentives, which are central to markets, tend to crowd out intrinsic and altru-
istic motivations (Bowles 2016). When market reasoning becomes the domi-
nant principle, societal goods are valued in the wrong way (Sandel 2012). For
example, if one can buy the right to pollute, then polluting ceases to be a moral
offense. Nevertheless, the dominant measure used to promote environmental
concern is pricing, such as attempts to price ecosystem services to value the nat-
ural environment and its many interconnected functions (Coffey 2016; Goméz-
Baggethun 2015).

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82 (cid:129) Value Judgments at the Heart of Green Transformation

The premise for valuing the natural environment in economic terms is to
assume commensurability, which allows for the inclusiveness of different values
in a cost–beneﬁt calculation. However, this requires that noninstrumental
values, such as the intrinsic value of nature, become downgraded to instrumental
values, such as ecosystem services, to ﬁt the analysis (cf. Vadrot 2014). Further-
more, cost–beneﬁt calculations provide no guidance for the judgment between
different complex calculations (Martinez 2009, 27), which may rely on uncertain
information, such as the innovations available to future generations and their
potential risks. Such complex judgments have an interpretive characteristic, as
actors identify and interpret signs or cues that help them reduce complexity and
create meaningful heuristics and assumptions that may guide action (Swedberg
2012; Wansleben 2012). This means that dominant assumptions are reproduced
through actions.

Sectorial and layered organization and technocratic and economic dis-
courses are the essential components of modern liberal states and their (striving
toward a) neutral bureaucracy, which serves the democratic system. However,
together they also shape the moral climate in contemporary societies (Blackburn
2003) and downgrade moral judgments to rational judgments (cf. Bauman
1994), thereby setting premises and limitations for the governance of a transfor-
mation toward sustainability.

In this article I aim to shed light on the institutional factors that condition
that tension between ﬁnancial gain and moral judgment, between economic
and environmental values.

Case and Method

Pension funds invest on behalf of millions of people, and they manage a sub-
stantial and growing proportion of global investment capital. The increasingly
inﬂuential role of public pension funds within the ﬁnancial system has long been
acknowledged. So, what conditions their potential to lever transformative
change? I address this in two steps. First, I assess the previous literature concern-
ing pension fund investors to identify their transformative potential by exploring
the extent to which value priorities (among economic and environmental
values) are contested and shifting among public pension fund investors. Second,
to gain a deeper understanding of what shapes and constrains funds’ engagement
with these values and the implications for governing a sustainable transforma-
tion, I build on an in-depth case study of Swedish public pension funds, the AP
funds (allmänna pensions fonderna). These funds are particularly interesting since
Sweden’s environmental policy is relatively ambitious. In addition to adopting
the UN’s Sustainable Development Goals, Sweden has amended the so-called
Generational Goal, which states that “the overall goal of Swedish environmental
policy is to hand over to the next generation a society in which the major envi-
ronmental problems in Sweden have been solved, without increasing environ-
mental and health problems outside Sweden’s borders.” These are overarching

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Monika Berg

(cid:129) 83

goals intended to govern all public organizations, and they thereby signify the
concerns of pension fund beneﬁciaries (i.e., the Swedish population). Moreover,
the National Pension Insurance Funds Act (2000, 192), which governs pension
funds, was amended in January 20191 to state that managers of AP1–AP4 should
govern their assets in an exemplary manner through responsible investments and
responsible ownership and to give particular consideration should to how sus-
tainable development can be fostered without compromising the overall return
objective and risk judgments.

AP1–AP4 have common guidelines for management and common core
values that involve the integration of sustainability factors, “such as environ-
mental aspects, social aspects and corporate governance aspects as well as eth-
ical aspects.”2 The funds have been recognized by the United Nations–founded
network Principles for Responsible Investment (PRI) as among the institutional
funds at the forefront of sustainable and responsible investment. However,
when evaluating the funds after the ﬁrst year of the new legislation, the govern-
ment concluded that the funds should strengthen their sustainability work.3 In
an interview on Swedish radio, the minister of ﬁnancial markets expressed that
the funds need to invest in accordance with the Paris Agreement,4 indicating
that the political intention is not fully reﬂected in the work of the funds.

Since AP1–AP4 all work under the same conditions, I will focus on these
funds and their common ethical council. I conducted ten semistructured inter-
views with the lead strategists at the funds and two chairs of the board; four
interviewees represented the funds in their Council of Ethics. Two interviews
were conducted with two respondents together, based on their request, for eleven
respondents total. The interviews, conducted between December 2019 and May
2020, were designed to capture the value conﬂicts that the civil servants identiﬁed
within the organization, their value judgments, and the institutional factors that
shape their judgments and the priorities of the organization. Our access to further
interviews within the funds was restricted. However, the interviews cover key
actors in the top management of the funds. The interviews presented a relatively
coherent image and illustrated a consistent professional culture that governs these
organizations, although the respondents varied in their reﬂexivity regarding the
rationale of the ﬁeld. I have anonymized the funds and interviewees, since this
information is not critical for the analysis, while it may allow respondents to
be more open. A broad set of documents (such as steering documents, govern-
mental bills, ofﬁcial reports, annual reports, and climate reports from the funds)
informed the interview guide and were used to gain deeper insight into the argu-
ments, examples, and information presented by the interviewees to strengthen
and validate my analysis.

1. Government Bill 2017/18:271, Changed Rules for the First–Fourth AP Funds (AP1–AP4).
2. As stated in the AP funds guidelines for exemplary management.
3. Skr. 2019/20:130, p 44.
4. Per Bolund, interviewed in Våra fossila pensionspengar, del 1 on Swedish radio, December 7,

2020, P1.

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84 (cid:129) Value Judgments at the Heart of Green Transformation

Public Pension Funds: Financial Actors with Increased Inﬂuence
Large-scale institutional investors managing pension funds initially emerged
and shaped Anglo-American economies (Clark 1998). Since around the turn
of the last century, a shift toward a global model of capitalized pension arrange-
ments has been seen (Dixon 2008). On one hand, this development is part of
the ﬁnancialization of the economy, which has enforced the interests of invest-
ment return on behalf of other considerations ranging from environmental con-
cerns to healthy working environments (Ferreras 2019). On the other hand, the
growing share of pension funds on the capital market opens a new position for
citizens and workers in relation to management, either in their role as beneﬁ-
ciaries, or in terms of public funds, through political directives to funds.

The emergence, growth, and increasing dominance of pension funds
changed the characteristics of global ﬁnance for structural reasons (Clark and
Hebb 2004). The increased inﬂuence of these actors set terms for their actions
and prompted the inclusion of noneconomic factors in investment decisions.
The long-term interests and relatively large shares of these actors render exit
(divestment) more difﬁcult, as they may destabilize not only a company’s stock
but also overall markets, affecting the rest of the portfolio (Sethi 2005). Thus, as
pension funds have grown, their interest in monitoring and controlling the com-
panies in which they invest (i.e., using their voice) has also grown. Institutional
investors work individually and collectively to shape ﬁrm behavior, which
implies a shift from passive to active investment strategies, such as shareholder
engagement. Pension funds have a particular potential to act collectively (which
is necessary to achieve transformative changes) since pension fund beneﬁciaries
are not in competition with one another and the funds are not in competition
over members/clients (Thamotheram and Wildsmith 2007). To the contrary, they
have a joint interest in a stable economic system (long-term returns); a livable,
healthy planet; and a socially and politically stable world. This interest is reﬂected
in the increased international cooperation and coordination among institutional
funds, for example, the PRI, the International Center for Pension Management,
and the United Nations Environment Programme–Finance Initiative (UNEP-FI).
These altered conditions within so-called pension fund capitalism (Clark
1998) demand new competences and practices. Fund strategists need to under-
stand and account for overarching shifts in politics, legislation, and the environ-
ment and segmental developments in the market in terms of the social, economic,
and technical developments that will affect how we live and what we value in the
future. However, this also implies that the assumptions on which these actors
act/invest become performative. The ideas and perspectives of these actors are a
part of shaping future developments (Jung and Dobbin 2012; Wansleben 2012).

Shifts in Pension Fund Investment

In recent years, increasing attention has been given to institutional investors and
their role in enhancing environmentally and socially responsible investments

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(cid:129) 85

( Jansson et al. 2014; Richardson 2009; Thamotheram and Wildsmith 2007).
Pension funds have increasingly positioned themselves as responsible investors
and are integrating sustainability into their business strategies (Sievänen et al.
2017). A cornerstone of the debate is ﬁduciary duty, that is, the legal obligation
of one party generally entrusted with the care of money or property to act in the
best interest of another party. The ﬁduciary duty to beneﬁciaries is interpreted in
different ways, and the notion of the best interest of beneﬁciaries is contested. In
its most narrow sense, according to ﬁnancial theory and conventional wisdom
within the ﬁeld, best interest is conﬁned to ﬁnancial interest; thus, economic
returns (Jansson et al. 2014, 214) and investment criteria should be based strictly
on ﬁnancial measures (Sethi 2005). This approach is considered the duty and
strict moral obligation of the trustee.

The increasing social and environmental concerns among pension fund
investors are generally motivated as being part of their long-term risk assess-
ment (Richardson 2009). Environmentally and socially responsible investment
is conﬁned to ﬁnancial assessment and thereby serves to fulﬁll these funds’ ﬁ-
duciary duty in a narrower sense (Clark and Hebb 2004, 144; Mees 2017). It is
argued that companies seeking to minimize their environmental impact act re-
sponsibly in relation to their different stakeholders, account for unintended
consequences (e.g., seek to minimize negative externalities), and therefore min-
imize future ﬁnancial risks (Hoepner and Schopohl 2018; Sethi 2005). Thus,
although social and environmental factors receive attention in investment deci-
sions, there is no perceived trade-off among values, as these factors are incorpo-
rated into the economic valuation.

However, reliance on strict economic motives has been challenged. The
inﬂuential Freshﬁelds Bruckhaus Deringer (2005) report5 outlined when funds
are legally allowed or even obliged to account for environmental and social con-
cerns, as follows: permitted when deciding between investments that are exactly
similar in ﬁnancial terms; obligatory when such concerns are ﬁnancially rele-
vant; and obligatory when there is a consensus among beneﬁciaries to support
it. The second point has received the most attention, whereas the third point
allows for a broader interpretation (or application) of ﬁduciary duty, which
challenges the conventional assumptions regarding appropriate actions or inter-
ferences with the ﬁnancial market. It is particularly relevant to public pension
fund reserves, which should arguably invest according to the overarching goals
and conventions of the nation. Archer (2017) argues that the Freshﬁelds report
encourages investment decisions that were previously considered to be in a legal
gray area, thus indicating an opening within the technocratic market-based ra-
tionale that governs institutional actors to shift institutionalized practices by
adopting these principles.

It may be argued that pension funds have a particular duty to address the
externalization of environmental and social risks, for the following reasons: ﬁrst,

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86 (cid:129) Value Judgments at the Heart of Green Transformation

as public organizations, they should arguably invest according to democratically
grounded decisions, such as general environmental goals; second, they are the
major players at the top of the investment chain; and third, they are responsible
for the ﬁnancial well-being of their beneﬁciaries and for generational equity,
and are thus motivated to account for the impact of externalized costs of CO2
emissions on future pensioners’ living standards (Thamotheram and Wildsmith
2007, 439–440). Thus, the motive to account for environmental and social
factors may rely on a broader notion of beneﬁciaries’ best interests, including
ethical or welfare interests ( Jansson et al. 2014; Richardson 2009). According
to this perspective, it is not logical to invest money for future retirement in
companies or businesses that place the future at risk, because they stimulate
climate development with consequences that will at best demand enormous
public investment to mitigate and adapt to (Rimmer 2016). However, a broader
perspective on the ﬁduciary duty which accounts for environmental and social risks
requires that different interests and gains of the public are judged and weighed
against one another and that economic values and gains are not granted superiority.
Over the last few years activist groups, together with some politicians and
media, have pressured public investment funds to protect environmental values,
contribute to green transformation, and invest in accordance with the Paris
Agreement (Mangat et al. 2018; see also the interview with Per Boland). To
address the institutional constraints on such a shift and, thus, on the transforma-
tive capacity of these actors, I now turn to Swedish public pension funds to exam-
ine the tension between the ﬁnancial imperative of securing growth in pension
capital and the goal of promoting sustainable development.

Institutional Factors That Shape and Constrain Value Judgments

Neutralizing Effect of the Economic Discourse

The representatives of the Swedish public pension funds I interviewed under-
scored a change within the ﬁeld of capital investment, particularly within the last
few years, in which environmental concerns are being given increased attention.
As one respondent expressed, the environment has become much more relevant
for funds and their analysis because it has become clear that climate change has
social implications (Interview 5). Environmental change, policy change, and
shifting attitudes are changing the market context, and this shift needs to be un-
derstood to make good investment decisions (Interview 10). Several respondents
underscored the need to develop macroanalytical scenarios in relation to climate
change and policy. Swedish funds are currently breaking new ground in this area,
paying careful attention to climate negotiations and other broader political ini-
tiatives and reactions (e.g., foreign trade policy). The Paris Agreement is described
as a milestone symbol of the broad acceptance of the situation and commitment
to act (although recognizing that such commitment is highly divergent interna-
tionally). A central presumption in the funds’ analytical work is that policy action

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(cid:129) 87

that aligns with the Paris Agreement will be adopted. The longer the policy
response takes, the stronger the policy reaction will be. Political and technical
development are therefore considered the key factors to observe to anticipate
developments in the ﬁnancial market (Interview 4). Thus, although the Paris
Agreement does not have direct political inﬂuence on the funds, it is considered
important for the funds since it affects the market.

An active process of understanding and internalizing nonﬁnancial criteria in
quantitative models is also evident (Interviews 3, 4, 5). The funds’ management
seek to identify sustainability indicators with predictive power and include more
sustainability variables in their indexes and models. The increased attention to
sustainability implies that there has been a strong increase in the spread of indi-
cators and information related to sustainability and environmental impact,
which is a development supported by European Union’s disclosure regulations.
One interviewee argued that enhanced transparency leads to greater responsibil-
ity among businesses. Others expressed a more critical concern regarding what
these factors truly reveal and the extent to which the disclosed information is
comparable and can act as a foundation for decision-making (Interview 8).
Furthermore, this development might grant economic advantages to the compa-
nies and market segments that resist disclosure and do not bear (or internalize)
their environmental costs (Interview 2). The respondents discussed this topic in
“neutral” terms regarding the functioning of the market, where costs need to be
internalized. However, increased transparency could also increase (or enable)
norm pressure either directly on ﬁrms or indirectly through investor decisions.
Increased transparency reveals the value priorities within businesses and the value
structures that investors support, which is critical for a deep green transformation.
The reiﬁcation of a value-neutral ﬁnancial market system with neutrality as a
virtue is palpable. Some interviewees expressed that investment decisions should
not be based on environmental concerns even in a choice between two invest-
ments in which the economic beneﬁts of both are judged to be equal. Regarding
this direct question, a leading analyst considered it to be ethical decision-making,
and therefore improper, since everyone may have their own ethics (Interview 4).
Environmental concerns are thus degraded to individual preferences, and thereby
are resisted even when they do not compete with proﬁt. In contrast, the Freshﬁelds
report states that it is obligatory to account for social and environmental factors
when there is consensus among beneﬁciaries to do so. Arguably the Swedish
environmental goals represent such a consensus.

There was some tension within the funds; the respondents varied in terms of
how strictly they were guided by the traditional economic view and their under-
standing of ﬁduciary duty. Some interviewees considered investments in oil or
coal companies to be unreasonable, although they might provide proﬁt for many
years, while other interviewees were strictly concerned with anticipating the right
time to sell before it ceases to be proﬁtable and argued that any other action
would be purely symbolic (Interview 1) (cf. Harmes 2011). The Swedish environ-
mental goals are not considered applicable to the international businesses in

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88 (cid:129) Value Judgments at the Heart of Green Transformation

which they invest. One interviewee argued that the Swedish environmental goals
therefore cannot be enforced through active ownership (Interview 1). Again, this
neutralizes the role of investors and their responsibility to follow environmental
goals. Attention is directed to businesses and regulation in the countries in
which the businesses operate. The layered organization of the ﬁnancial system
allows for dispersal of responsibility and disownment of value-based action. In
legitimizing their actions, the respondents used a consequentialist logic and
returned to the limited effect of their (possible) actions in terms of promoting
sustainable change. They did not, however, consider their role in maintaining
unsustainable practices and stabilizing the status quo.

The persistence of the traditional economic view and understanding of
ﬁduciary duty are comprehensible if we consider that the institutionalization
and expansion of market discourse in modern society relies on its representa-
tion as a neutral and objective means of governance (Davies 2017) where value
neutrality is the main ethos (du Gay 2000). The economic rationale remains
strong and constitutes resistance to environmental values while praising value
neutrality. Interestingly, one of the chairs of the board argued that it is impor-
tant that concern for the environment be presented such that it is not perceived
as an idea of the Green Party or the left; otherwise such concern will be resisted,
since people within ﬁnance generally lean to the right (a statement which con-
ﬁrms that an ideological dimension is at work).

Toward a More Embedded Economic Discourse

I have argued that the institutionalized economic perspective within the funds
impedes a reprioritization of value hierarchies. At the same time, the economic
perspective itself is developing, and there are signs of an embedding of the eco-
nomic discourse such that economic and environmental values are gaining rec-
ognition. The growth of pension capital and long-term institutional investors
with a clear stake in the stability of the market are among the premises for the
embedding. The funds’ strategists expressed that it is essential for policy makers
to step up, set the rules of the game, and level the playing ﬁeld such that envi-
ronmental costs are represented in economic costs. A common example men-
tioned by the respondents is CO2 taxes, which they considered crucial. Thus,
clear policy directives are welcomed by the funds. They seem to request a visible
green hand that levels the ﬁeld in favor of the environment to avoid societal risks
and the accompanying stress to the economic system. The motivation is that
clearer regulation will decrease uncertainties and facilitate ﬁnancial analysis
and investment decisions, setting the premise for shallow green transformation.
Another sign of embedding is that the funds base their strategies on analyses
that seek to account for and thus internalize environmental costs that have thus
far been externalized. Extensive resource use and unsustainable business models
are judged by the funds to be risks. If large-scale investors, such as public pension
funds with their large shares of investment capital, begin to act according to this

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(cid:129) 89

position, then the understanding of the natural environment and its relation to
the economy may shift. The growing concern and accounting for environmental
factors have already broadened the economic rationale of the funds. New com-
petencies and practices are considered relevant and included, potentially leading
to modiﬁed norms (cf. Mees 2017, 72). Only a decade ago, the proponents of the
environmental perspective and those of the economic school were very far apart
and rarely managed to communicate (Interview 1). Subsequently, sustainability
has become integrated into the organizational language and become a concern
for all parts of the organization. Another sign is the emergent shift away from
“the face-less capital” as the investor collectives engage more in active ownership
(Interview 1). Swedish funds are starting to target unsustainable branches and
mobilize investors to instigate changing industrial policies and practices, with
mining as their prime example; they won the PRI’s stewardship project of the year
award in 2020, together with the Church of England’s pension board6.

As institutional investors give increasing attention to environmental and
political factors, seek disclosure, and consider the externalization of environ-
mental risks as ﬁnancial risks, two effects may become evident. First, the market
may become increasingly embedded in its environmental preconditions as prin-
ciples for pricing change. Second, changes in policies, legislation, and consumer
behavior are enforced and accelerated by the actions of large-scale investors.
Herein lies the change prospective of rational technocratic discourse: if environ-
mental consequences and prerequisites are acknowledged, then they are as-
sumed to be acted on (eventually) and thus become integrated into strategic
judgments and investment strategies, generating chain reactions between ﬁelds
(politics, legislation, ﬁnance, business) and synergies by strengthening signals,
which shape further judgments and action (Swedberg 2012). Thus, institutional
investors may accelerate the changes initiated within the policy sphere and
shape norms toward more responsible ownership. However, the image of the
funds as neutral, that is, as only reﬂecting shifts in other spheres, is maintained.

Countering the Ethical Dislocation of Multiple Organizational Layers

Another structural factor that has served to downplay value judgments and has
thereby hindered explicit value (re)priorities is the multiple organizational layers,
in which investors comprise an additional layer. I will consider infrastructure invest-
ments to illustrate that public pension funds may either expand or close the distance
between people with inﬂuence on decisions and those affected by them—and
thereby the ethical dislocation that multiple organizational layers imply.

As the market is changing and the expectation of a high return on stocks is
decreasing while rent is low and obligations thus give a poor return, funds seek
other opportunities for investment with stable returns (Interview 2; cf. Skerrett

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90 (cid:129) Value Judgments at the Heart of Green Transformation

2017, 144–145). Such areas in which funds see potential include public infra-
structure, real estate, and services (Interview 2; Organisation for Economic
Co-operation and Development 2011). As a strategic manager explained, a mu-
nicipality may wish to invest in its own renewable energy plant, and the funds
may conduct the investment or join as a partner (Interview 2). Considering the
amount of public money that resides within pension funds worldwide, this
capital could play an essential role in energy transition, where the future eco-
nomic beneﬁts of new technology and infrastructure will beneﬁt the public.
Tim Jackson (2009) emphasizes that a change in investment rationale is essen-
tial for the transition to a low-carbon economy, where investments need to play
a greater role in relation to consumption and public investment and ownership
need to increase with long-term perspectives and beneﬁts returned to the public.
However, current experiences with infrastructure investment may provide
some warning. Canadian funds have been among the front-runners in pushing
for the ﬁnancialization of infrastructure, which is often achieved through public–
private partnerships that transform physical and social infrastructure and natural
assets, such as water, from low-cost collective instruments into ownable, tradable,
and revenue-generating assets. Therefore, infrastructure has gained recognition as a
distinct asset class (Skerrett 2017). For investors to invest in infrastructure, risks
need to be managed. This is commonly achieved through clauses with guarantees
and investor protection, which secures long-term proﬁts, immunizes investors
from political inﬂuence, and compromises democratic inﬂuence (Skerrett
2017). Thus, pension funds support the expansion of markets into new spheres.
Infrastructure investments may take two different directions. A public pen-
sion fund may be a stable investment partner and enabler. When investing
domestically, ownership and proﬁt remain in the hands of the public. Thus,
the increasing size of public pension funds is an enabler for countries with such
capital, which could use it to build sustainable, publicly owned infrastructure.
However, it may also enforce neoliberal development by creating and expanding
markets and prolonging or even blocking accountability chains in the governance
of natural resources. The risk is more imminent when pension funds make infra-
structure investments in countries depending on investment, which increases the
distance between the affected public and those with decision-making power and
opportunity for ﬁnancial gain. Such development might even be considered a
new, more insidious form of colonialization. Pension fund capital, currently a
large share of global ﬁnancial capital, is very unevenly distributed globally. With
the increasing attraction of infrastructural investments, it will be essential to
govern these institutions and acknowledge their normative role and responsi-
bility for a just green transformation to be possible.

Conclusions

Transformative changes toward a sustainable society demand reconsideration of
the values that structure the organization of society. I have argued that deep

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(cid:129) 91

green transformation is required and that its depth depends on the extent to
which environmental values are prioritized, in relation to ﬁnancial value. In-
creasing attention has lately been given to sustainable ﬁnance and the role of
institutional investors in promoting global sustainable transformation (Harmes
2011; Sethi 2005; Sievänen et al. 2017). However, the economic perspective and
the ﬁnancial effect of their actions remain in focus (cf. Paterson 2021). Since the
turn of the century, public pension funds have grown in size and activity and
provided new possibilities for humanizing capital in the global market and ren-
dering it more sustainable (Clark and Hebb 2004). The nature and size of public
pension funds imply that they have an interest in long-term market stability,
rendering them attentive to sustainability factors and shifting policies. By exam-
ining Swedish pension funds, I have argued that these conditions lead to an
embedding of the economic discourse. Since pension funds are attentive to mar-
ket stability and politics in their strategic analysis, they may strengthen such sig-
nals and enforce politically initiated change processes.

However, I also have shown that the professional culture and its economic
rationale within funds serve to neutralize the political role of the funds. Within
Swedish public pension funds, strategic management identiﬁes more with the
ﬁnancial sector than with civil services. The funds interpret their role in neutral
technocratic terms: to make rational judgments in reaction to contextual changes
with ﬁnancial goals as their guiding star. The economic and technocratic rationale
serve to avoid explicit value judgements and value-related disruption and favor
pragmatic piece-meal changes (cf. Stewart 2006, 192), which excludes deep green
transformation. Indeed, public pension funds have an interest in stability, while
deep green transformation requires fundamental changes in the ﬁnancial system
and investment rationale (Jackson 2009; Neville 2020, 8; Newell 2015). Actions
that may destabilize the market do not make ﬁnancial economic sense. Neville
(2020) suggests that scholars and citizens should not turn to the ﬁnancial system
to address climate change but rather consider alternate economic models. How-
ever, change needs to take its starting point in the current system (Newell 2015,
84). It is more likely to change an encompassing system from within than it is to
replace it.

The growing attraction of institutional investors to infrastructural invest-
ments emphasizes the urgency of a political understanding and approach to the
role of these actors. Interest in infrastructural investments is driving an expan-
sion of markets. While this is a process of fundamental political nature, the neu-
tralizing mechanisms described in this article portray such development as
natural and thereby unquestionable or undisruptable. The investor economy
has anonymized capital and ampliﬁed interest in ﬁnancial returns (Ferreras
2019). For value (re)priorities to be attainable, it is preferable if the distance
between investment decisions and the affected people decreases (cf. Bauman
1994). Public pension funds have the potential to achieve this goal if they
embrace it. However, if funds invest globally in infrastructure and focus purely
on returns, power will recede even further from the affected publics. Such

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92 (cid:129) Value Judgments at the Heart of Green Transformation

strategic choices are not neutral technicalities. Thus, in addition to asking what
role institutional investors play for a green transformation, we must ask the nor-
mative and resisted question: which role they should play and what hinders
them from doing so.

Monika Berg is an associate professor in sociology and part of the Environmental
Sociology Section at Örebro University. She holds a PhD in political science. Her
main research interest is within environmental governance and focuses on value
judgments, epistemic practices, institutional settings, and their relation to policy
change and green transformations, from a democratic outlook. Her research has
been published in journals such as Environmental Politics, Climatic Change, Environ-
mental Sociology, Public Management Review, and the Journal of Public Administration
Research and Theory.

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