The rise and spread of sustainable investing in the Netherlands

Abstract

Sustainable investing (SI) experienced three phases in the Netherlands from the 1960s until the present. In the 1960s a small niche market emerged against a background of growing environmental concerns and debates on Western countries' responsibility for developing countries. This niche market was populated by ‘ethical’ investors ‘earmarking’ their investments for promoting specific social or environmental causes. The burst of the dot-com bubble and financial scandals in the early 2000s resulted in the partial deligitimization of financial practices. With the development of global SI guidelines this resulted in a changing context for the financial sector which needed to restore its economic and moral legitimacy. Large retail banks began offering SI funds while the vanguard of the institutional investors started to rethink their shareholder responsibility and experimented with SI methods. This second phase, which meant a redefinition from ethical to responsible investing, lasted until 2007. A documentary on investments by, especially, pension funds in companies producing controversial weapons kicked off the third phase. This was around the start of the recent financial and economic crisis, which made people lose confidence in the financial sector on a much larger scale and question financial markets' legitimacy. This investment scandal triggered institutional investors to incorporate environmental, social, and governance considerations. This is justified by claiming that integrating sustainability issues helps to better manage investment risks, thereby reflecting the standard investment model of risk-adjusted returns and resulting in a redefinition from responsible investing to SI. As a result, SI seems to be in the process of becoming mainstream.