Can Sustainable Investing Save the World? Reviewing the Mechanisms of Investor Impact

Abstract

<jats:p> This article asks how sustainable investing contributes to societal goals, conducting a literature review on investor impact—that is, the change investors trigger in companies’ environmental and social impact. We distinguish three impact mechanisms: shareholder engagement, capital allocation, and indirect impacts, concluding that the impact of shareholder engagement is well supported in the literature, the impact of capital allocation only partially, and indirect impacts lack empirical support. Our results suggest that investors who seek impact should pursue shareholder engagement throughout their portfolio, allocate capital to sustainable companies whose growth is limited by external financing conditions, and screen out companies based on the absence of specific environmental, social, and governance practices that can be adopted at reasonable costs. For rating agencies, we outline steps to develop investor impact metrics. For policy makers, we highlight that sustainable investing helps diffuse good business practices, but is unlikely to drive a deeper transformation without additional policy measures. </jats:p>

Evaluation of strategic and financial variables of corporate sustainability and ESG policies on corporate finance performance

“…Many investors are attracted to sustainable investing due to their altruistic motives (Hartzmark and Sussman 2017;Riedl and Smeets 2017), the notion that investing their money in assets in ones which both aim to provide positive financial returns and also makes a positive impact in the wider world is something that is of great benefit to an increasing number of investors. As a result of this, banks and asset managers are catering to both these requirements, if not expectations by offering an increased amount of investment products where the apotheosis of their existence is on sustainability, responsibility and bringing about positive change (Kölbel et al 2020).…”

Engaging in a New Field: Business Owning Families’ Differential Approach to Impact Investing

“…More importantly, future research would benefit from examining whether and how adopting a mid-range approach to II, the way some BOF do, influences the social and financial performance of these investments. Indeed, we have a limited understanding of the actual impact investors make through II (Kolbel, Heeb, Paetzold, & Busch, 2020). While recent research suggests that impact investors who demand less rigorous impact metrics (whether these are more qualitative or quantitative in nature) are less likely to produce significant social change (Findlay & Mo-ran, 2019), little is known as to whether adopting a variety of needs-first and tools-first strategies yields differential impact over time.…”

Impact investments: a call for (re)orientation

“…While Sustainable Finance 1.0 can mainly be ascribed to an individual investor's responsibility standpoint, and the topic successfully became an important part of the mainstream financial market during the course of Sustainable Finance 2.0, a key aspect was mostly neglected during these phases: Do investments in the sustainability context contribute to a better world? This idea requires investors to trigger a material change in a company's environmental and social performance (Kölbel et al 2019).…”