Transforming finance: Institutional logics as causal belief systems in sustainable investment

Despite all efforts, global investment flows remain misaligned with the Paris Agreement, highlighting the need for financial system transformation. Existing research on finance and sustainability has focused on structural system aspects, including individual actors, policies, feedback mechanisms and tipping points, but has paid limited attention to the normative values and beliefs through which financial practices are justified, reproduced, and transformed. This study addresses this gap using the institutional logics perspective. By conceptualising logics as causal belief systems, it reconstructs the financial logic alongside materiality, impact, and integrity logics for sustainable investment, as often seen in, for example, ESG investing, socially responsible investment (SRI), ethical investment, and impact investing. Using causal mapping and causal loop diagrams (CLDs), the study analyses how these logics interact and under which conditions they can align financial flows with climate goals. This approach enables a systematic analysis of institutional complexity, compatibility, and institutional change within the financial system. The findings show that materiality-based logics remain constrained by established risk–return frameworks and Modern Portfolio Theory (MPT), whereas impact and integrity logics provide stronger pathways for embedding sustainability in investment decision-making. Methodologically, the study demonstrates how CLDs can integrate institutional logics with systems thinking and system dynamics to identify deep leverage points for normative change. These leverage points indicate where interventions in research, policy, regulation, education, and litigation can reshape investment logics and redirect financial flows.