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The 5-year Vinnova funded center is designed to create an internationally leading competence centre for sustainable financial markets. It will focus on, among other things, new thinking about risk and opportunities, sustainability norms and policies as well as transformation, technology and innovation.

Founding partners of the Sustainable Finance Lab (SFL) are GEDB and Stockholm Resilience Centre, together with the Royal Swedish Institute of Technology (KTH) in Sweden, Luleå University, Gothenburg University, Stockholm School of Economics Institute for Research, and the Swedish Environmental Research Institute.

Learn more at the SFL webpage

Sweden’s most influential researchers

The programme is funded for five years with the possibility of an additional five-year period, subject to evaluation. During the first five years, SFL will study how various financial decisions and products may lead to positive or negative impacts on both society and the environment.

SFL includes some of Sweden’s most influential researchers in environmental science and business sustainability studies. The management of the new programme is made up of two centre directors, and four vice directors. GEDB executive director Beatrice Crona will act as the vice director, with particular focus on science-based assessment of impacts.

“A great challenge with current financial market standards is that they do not take into account several social and environmental impacts,” says Beatrice Crona.

“Limited attention to these kinds of “externalities” has led to inefficient pricing in the market, and has made unsustainable projects more financially attractive than they are from society’s point of view. We are extremely excited about being able to push the research forward to address these pressing issues.”

Deep engagement with stakeholders

In addition to mobilizing a wide variety of resources within the respective partners’ networks, Sustainable Finance Lab will also involve a long range of diverse partners from industry, investment and civil society including:

Danske Bank

Swedish Financial Supervisory Authority

Swedish Central Bank

Nasdaq OMX Stockholm Exchange

Swedfund

World Savings Bank Institute

Skanska

WWF

An advisory council has also been put in place with the following members: Robert Eccles (Said, Oxford University), Karolina Ekholm (Stockholm University), Caroline Flammer (Boston University), Johan Rockström (Potsdam Institute for Climate Impact Research and University of Potsdam), and Darya Shaked (WeAct Venture).

Challenges to be adressed

In a commentary in One Earth, Beatrice Crona and colleagues at the Sustainable Finance Lab lay out four challenges that currently prevent capital markets from contributing to a socially and environmentally sustainable economy and reflects on how these can be turned into opportunities. These challenges will form the basis for research at the Sustainable Finance Lab, which will be launched 11 June. More info and register here

Challenge 1: Assessing real impact

New sustainability metrics are needed that also incorporate risks of transgressing planetary boundaries and fuelling social inequalities. Academics, investors, and regulators should join forces to rapidly develop sustainability criteria for investment decisions using the best-available science.

 Challenge 2: Systemic risk in an interconnected world

A global market dominated by large firms has increased the risk for shocks to propagate and be amplified across international supply chains. Academia can help develop new risk assessment approaches aiming to increase financing for innovative small and medium-sized enterprises in the green and social sector and significantly enhance the capacity of the financial industry to both ‘‘reduce harm’’ and increasingly ‘‘do good.’’

Challenge 3: Overcoming inertia and accelerating action

Norms that guide financial investments are the result of a long legacy of theory development within narrowly defined academic disciplines. Prevailing norms are a barrier to more inclusive, sustainable, and efficient financial markets. New arenas are needed where academics and practitioners come together to discuss and develop new ideas, test these, and through co-creation and experimentation transform preconceived traditions and practices.

Challenge 4: Developing an ecosystem for change

Regardless of investor type, the norms that shape risk frameworks, the criteria used for assessing the sustainability of investments, and the measurements of investment impact all need to be congruent across actors and be integrated as central decision criteria in parity with financial criteria. Developing an ecosystem of both incumbent and new and non-traditional actors will facilitate the development of innovative and sustainable yet commercially viable business ideas and financial practices that align with broader societal sustainability goals.

Crona. B., K. Eriksson, L. Lerpold, M. Malmström, M. Sanctuary, J. Sandberg. 2021. Transforming toward sustainability through financial markets: Four challenges and how to turn them into opportunities. One Earth 4(5):599-601 Read commentary