Impact investments: a call for (re)orientation

Abstract

Practitioners and academics have been using different terms to describe investments in the sustainability context. The latest inflationary term is impact investments—investments that focus on real-world changes in terms of solving social challenges and/or mitigating ecological degradation. At the core of this definition is an emphasis on transformational changes. However, the term impact investment is often used interchangeably for any investment that incorporates environmental, social, and governance (ESG) aspects. In the latter instance, achieving transformational change is not the main purpose of such investments, which therefore carries the risk of impact washing (akin to “green washing”). To offer (re-)orientation from an academic perspective, we derive a new typology of sustainable investments. This typology delivers a precise definition of what impact investments are and what they should cover. As one central contribution, we propose distinguishing between impact-aligned investments and impact-generating investments. Based on these insights, we hope to lay the foundation for future research and debates in the field of impact investing by practitioners, policymakers, and academics alike.

Developing an Impact-Focused Typology of Socially Responsible Fund Providers

“…Another research topic that arises in the context of investor impact is the credibility of impact claims. Both Heeb et al (2021) and Busch et al (2021) warn against products that claim a sustainability effect but at best make investors feel good. However, research has not yet addressed the issue of developing indicators to distinguish providers of such products from those that credibly strive for sustainability improvements.…”

“…Given that these IISs are arguably more effective in achieving investor impact, we perceive a gap between theoretical impact orientation and practical implementation. Whether this is an indication that ESG ambassadors are practicing "impact washing" (Busch et al 2021) or a result of being unaware of differences in the effectiveness of the IISs could be an interesting research question for future studies. Another difference is that ESG ambassadors, unlike ESG hermits, do not use stigmatization to impose their agenda upon portfolio companies.…”

Between impact and returns: Private investors and the sustainable development goals

“…While the business case debate has been ongoing for over 40 years, more recent debates explore CSR considerations beyond its effects on CFP. The question around driving positive change with one's investments has become a rising theme in the field (Busch et al, 2021). Yet it remains unclear how investors' desire for impact affects their financial return expectations.…”

“…While the business case of CSR—specifically the when and how—is still an ongoing debate, more recent works portray an interest in CSR beyond its effects on CFP. The desire to use one's investments to drive and stimulate positive change has become a rising theme in financial markets (Busch et al, 2021). Yet it remains unclear how investors' desire for impact affects their financial performance expectations.…”

The identity of social impact venture capitalists: exploring social linguistic positioning and linguistic distinctiveness through text mining

“…The lack of clear boundaries and a precise definition of the impact investor prototype has created space in the market for opportunistic behaviors (Busch et al, 2021;Findlay & Moran, 2019). Some actors, moved by the goal of maintaining their level of competitiveness by leveraging the trend towards sustainability (Findlay & Moran, 2019;Freireich & Fulton, 2009), deviated from the social and transformative mission that should be the vital goal of these investments (Harji & Jackson, 2012;Hehenberger et al, 2019;Höchstädter & Scheck, 2015).…”