Agenda 2030 Graduate School blog

Lund University Agenda 2030 Graduate School is a global, cutting-edge research school and collaboration platform for issues related to societal challenges, sustainability and the 2030 Agenda. The 17 PhD students from all faculties at Lund University enrolled with the Agenda 2030 Graduate School relate their specific research topics to the Sustainable Development Goals. In this blog the PhD students of the Graduate School discuss topical research and societal issues related to the 2030 Agenda.

Responsibility shifting in investment and sustainability

Green cactus money box. Photo.
Photo by Annie Spratt on Unsplash.

Posted on 12 February 2021 by Soo-hyun Lee (Faculty of Law).

The views expressed in this publication are those of the authors and do not necessarily represent those of the Agenda 2030 Graduate School or Lund University. The present document is being issued without formal editing.


This article is the winner in an essay competition held by the 
UNCTAD YSI Summer School on Globalization and Development Strategies. Participants of the school worked with senior scholars to fine-tune their drafts, and the top-5 articles were published here.

UNCTAD is a permanent intergovernmental body established by the United Nations General Assembly in 1964. Its headquarters are located in Geneva, Switzerland, with offices in New York and Addis Ababa. UNCTAD is part of the UN Secretariat, reports to the UN General Assembly and the Economic and Social Council, and are also part of the United Nations Development Group.


When it comes to understanding the relationship between investment and sustainability, national and international governance institutions take a facilitative rather than regulatory approach. 

This is largely premised on two assumptions: (1) overreach would result in regulatory chilling that could limit investment and (2) regulating investment inflows would limit their potential economic impact. Though taking place in different forms between portfolio investments and foreign direct investment, a facilitative approach, in principle, shifts the responsibility of defining and understanding the interplay between investment and sustainability to market interactions: between the investor and the recipient. 

Assessing the facilitative approach to investment and sustainability within the microeconomics of sustainable development policy renders some noteworthy observations. Namely, creating a regulatory and governance environment that facilitates the consumer and producer, or in this case the recipient and the investor, shifts responsibility away from the government or prevailing institution from taking a more prescriptive approach: defining, implementing and enforcing a more substantial linkage between investment and sustainability.

A prescriptive role, while more vulnerable to the potential consequences of regulatory chill, may be necessary to administering the nexus between investment and sustainability because sustainability as a motivating factor does not naturally arise from the economic rationality that fuels market interactions. The relationship between investors and the recipients of investment, just as that between producers and consumers, does not function on the logic of advancing sustainability, but rather economic profit maximization. For this reason, should their interaction deviate from this core market-based logic by, for example, running deficits in consumer and/or producer surplus, or being involved in investments where risk supersedes returns, their interaction is jeopardized and likely to be discontinued. For that reason, shifting the responsibility to the consumer to fuse a more molecular bond between investment and sustainability seems destined to meet an inconclusive outcome as it saps away the essential motivation to shoulder that burden both materially in terms of resource allocation and substantively as a determination to form a meaningful investment and sustainability nexus.

Turning to views in sustainable consumption, Mont, et al (2013) identifies a similar paradox in their work for the Nordic Council of Ministers based on interviews with policymakers as a myth of sustainable consumption. They write that shifting the responsibility of sustainable consumption to the consumer limits state involvement to raising awareness rather than taking more proactive interventions against unsustainable consumption. The inherent problem behind shifting responsibility, they write, is that consumer behaviour is based on contextual factors that are “beyond the control of individual actors”, namely prevailing social norms that shape a consumer’s understanding of consumption in connection to sustainability. Presently, this norm is that sustainable consumption is an extraordinary decision that requires justification (Mont, et al, 35-37) as it deviates from market-based reasoning. The consumer requires additional justification for these decisions to justify that divergence: why to choose a product that provides comparatively less consumer surplus by paying a higher price or paying a price to receive less utility arising from consumption?

Lorek and Spangenberg (2013) explains responsibility shifting in sustainable consumption as the lock-in situation, where transitions to sustainability is contingent on more growth and technological innovation. This is reflected through the I = P*A*T equation, which offsets the added cumulative climate impact (I) as the function of the factor of population growth (P) and greater per capita affluence (A) by technological progress (T). With advances in (T), higher unsustainability derived from increasing (P) and (A) values are offset by technologies that enhance the sustainability of consumption. Herein lies one of the causes behind responsibility shifting, which is a “technological optimism” that firms will advance the state of technology if given the means to do so (Lorek and Spangenberg, 35). The central economic tenet behind this technological optimism is economic liberalism, which attributes the agency and primacy of economic optimality to market-based actors, in turn manifesting external intervention by the state or another prevailing authority as obstacles to that optimality. As such, the role of the state or prevailing authority is limited to providing information, shifting responsibility to market-based interactions (Lorek and Spangenberg, 40).

Responding to the situation of lock-in, which strives in the ecosystem of economic neoliberalism, Dalhammer (2019) advances that policy instruments are necessary to form a sustainable choice architecture that features sustainability as the default option. Lock-in prevents microeconomic transitions to strong sustainability, such as adopting ideas of consumptive sufficiency, thus rendering top-down involvement of the government or prevailing authority necessary (Dalhammer, 140). Simultaneously, policy instruments should be mobilized within a “reflexive governance mode”, which Mont (2019) identifies as a standpoint of continuous learning and acknowledgment of intertwining contextual factors that influence consumptive behaviour (Mont, 3). The policy instruments arising from this mode should aim to facilitate the transition from system optimization, which perpetuates the business-as-usual scenario, to system transformation, which seeks to integrate alternative solutions to the policy and governance process that move beyond the primacy of consumer sovereignty (Mont, 9).

Extrapolating these observations from sustainable consumption to the investment and sustainability nexus takes no stretch of the imagination. The engine that drives forward such extrapolation is simple yet powerful: more consumption and investment are better. The economic neoliberalism to which the origins of unsustainable consumption are traced also lays claim to the origin of crucial disconnects between investment and sustainability. This applies to both forms of investment, portfolio and foreign direct, as do many of the ruminations in sustainable consumption thought. This close albeit conceptual cross-disciplinary application warrants closer examination.

Sustainable portfolio investment has been building traction over the last three years with latter half of 2019 alone witnessing billions of USD identified under the environmental, social and governance (ESG) investment label. There remain considerable limitations to the concept, the most pronounced amongst them being a lack of shared understanding and standards of ESG metrics and stewardship. The World Bank Group (WBG) and the UN Principles on Responsible Investment have been on the forefront of institutional efforts to address these concerns. Despite the wide involvement of national pension schemescentral banks and government regulation, policy instruments remain within the system optimization mindset that shifts responsibility to the actual sustainability element of ESG to the producer-consumer.

The result of a soft sustainability approach to regulating ESG has exposed it to systematic greenwashing. The mentality in ESG continues to be growth-oriented, investors financing asset managers based on perceptual cues and little understanding of metrics and their shortcomings. With the entry of large names in finance like BlackRock and MSCI or international organizations like the WBG and United Nations through the PRI, portfolio investors are eased into the lethargy of technological optimism. Morgan Stanley’s Institute for Sustainable Investing identified promising trends in the sustainable investment epithet, employing a definition of sustainable investing that was not only substantively vacuous but very much aligned to the central economic ideological tenets of growth-oriented market fundamentalism.

Moving outward to foreign direct investment and its governance does little to mitigate these concerns. Despite international investment law being based on a regime of treaties and treaty arbitration, which directly involves governments, investment, less considerations of sustainability in investment, find no prescriptive definition. Investors, which notably include shareholders of companies, are given rights and protections in the state recipient to that investment, such as access to investor-State dispute settlement (ISDS), but the means to determine the substantive qualities of investment remain ad hoc and left the judicial discretion arising from investment arbitration (See, for instance, Mihaly International Corporation v. Democratic Socialist Republic of Sri Lanka, ICSID Case No. ARB/00/2Ceskoslovenska Obchodni Banka, A.S. v. The Slovak Republic, ICSID Case No. ARB/97/4Malaysian Historical Salvors, SDN, BHD v. The Government of Malaysia, ICSID Case No. ARB/05/10).

While there is no single government to adopt and then apply a reflexive governance model to the multilateral regime of international investment law, the United Nations can and should play a larger role in taking more prescriptive, system transformative action to ensure that sustainability is not simply a spillover of investment, rather sustainability leads decisions of whether investment should be admitted.


The views expressed in this publication are those of the author’s and do not necessarily reflect the views of any institution. 

February 12, 2021

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2 comments

  1. Soo-hyun LEE

    Whether the EU Taxonomy can definitively reduce green-washing is yet to be seen, but one important trend to watch for is how materiality is assessed between different aspects of sustainable investment. For example, would the manufacture of solar panels that employ local productive capacity therefore generating employment qualify under the Taxonomy if the raw materials sourced for the panels originate from a non-EU country that has been suspected of forced labour and poor environmental stewardship? The top-down approach of the European Commission means that it will be up to the EC to identify these gradients and how these different dimensions interact and are assessed. This will invariably cost resources, but it can help to reduce the problems that arise out of competing standards. The problem, however, is that the centralization of those standards means that all arbitrage must go through the EC, which may be operating on limited data (and perhaps human resources) and thus regulate based on speculation. The opposite, which is a bottom-up approach, allows for private companies to engage in an open competition of standards rather than a Taxonomy. This would mean that standards may overlap and conflict, but over time may result in a more comprehensive, realistic and transparent standard.

  2. Viktor Karlsson

    Do you think that the new EU taxonomy can contribute to reduce green-washing to please the investors? Is there a problem that the new framework is made by the European commission and not private companies?

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