Facilitating Sustainable Investments - How the EU Taxonomy is expected to change the principal-agent relationship between fund managers and retail customers

Abstract

There is currently an information asymmetry on the financial market, which has implications for the practice of greenwashing, hindering the capital allocation towards the Sustainable Development Goals. To fill this information gap, the EU Commission initiated the development of an EU Taxonomy - a standardized classification system to facilitate sustainable investments. This thesis aims to examine how the principal-agent relationship between retail customers and fund managers is expected to change because of the EU Taxonomy, by answering the research question ”How do fund managers expect the principal-agent relationship with their retail customers to change by the EU Taxonomy?"

The findings from interviews with Swedish fund managers indicate that the information asymmetry between retail customers and fund managers will decrease due to the EU Taxonomy, and that their interests will become more aligned. The information disclosed by fund managers expressing an equity fund's alignment with the EU Taxonomy will comprehensible for the retail customer and will limit greenwashing. According to the findings, these disclosures will be comprehensible and therefore useful for retail customers to shift their financial flows, facilitating sustainable investments.