Institutional investor behaviour and the energy transition: A complexity framework for sustainable finance in the UK

Despite sustainable investment flows having increased significantly over the past decade for transforming the current energy system, a large investment gap remains. This research explores the complex links between institutional investors' expectations on the speed of the energy transition and their sustainability-related investment behaviours. Through in-depth semi-structured interviews with institutional investors, we construct a complex system model using a causal mapping approach, illustrating complex relationships within the sustainable investment system. Our contribution involves the development of multi-layer cognitive maps for different types of institutional investors, followed by a composite causal map that dissects key investment behaviours and investor expectations. Results reveal interlinked concepts influencing investment behaviour and highlight feedback loops with potential amplifying effects on investor expectations and investment behaviour. Two critical feedback loops emerge: 1) the interplay between political and financial support for the energy transition and the associated cost, and 2) the intricate relationship between sustainability factors and asset valuation. This analysis shows that addressing these interconnected issues simultaneously and monitoring negative feedback loops that may curtail sustainable finance flows are vital in accelerating sutainable finance. The results also reveal key heterogeneities amongst institutional investors related to fiduciary duties, stranded assets and the importance of fossil fuels in the energy system. Our insights provide a foundation for designing holistic energy policies and a reference system for evaluating policies aimed at accelerating sustainable finance.