The Impact of Sustainable Investment Funds – Impact Channels, Status Quo of Literature, and Practical Applications

Wilkens, Marco; Rohleder, Martin; Zink, Jonas

doi:10.2139/ssrn.4205546

Cited by 4 publications

(5 citation statements)

References 25 publications

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“…8 As noted above, quantifying sustainable investing is very difficult; therefore, this data should not be taken at face value but is rather displayed to indicate the increase of sustainable investments; source: https://www.unpri.org/about-us/about-the-pri . 9 For the emerging literature on the potential impact of sustainable finance, see Busch et al, 2021;Caldecott et al, 2022;Kölbel et al, 2020;Wilkens, Rohleder and Zink, 2022.…”

Section: A Short History Of Esgmentioning

confidence: 99%

ESG: ‘sustainable’ investing and the risk of infrastructural lock-in

Jaspert,

Fichtner,

Petry

2024

Preprint

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Various kinds of sustainable finance have grown rapidly after the 2015 Paris Agreement. But whether this allegedly ‘sustainable’ way of investing can actually fulfil the crucial task of facilitating the mitigation of climate change depends very much on the concrete business schemes and investment practices that are adopted. This chapter conceptualize ESG (environmental, social and governance) as the infrastructure that underpins ‘sustainable’ investing. We argue that ESG constitutes a particular set of market devices – data, ratings, and indices – that define the logic, structure, and outcomes of sustainable investing. Having historically emerged as market-driven private standards for governing how to invest ‘sustainably’, we demonstrate how a small set of private actors defines the infrastructural arrangements that guide ESG investing. Consequently, a preference for a market-friendly and one-sided conception of sustainability exclusively focused on risks to investors’ portfolios (‘single materiality’) was implemented by the actors that defined de facto standards. This setup of ESG creates what we call an ‘infrastructural lock-in’ whereby this particular conception of ‘sustainable’ investing – which is not utilising all available transmission mechanisms to actively advance sustainability becomes the baseline and the common standard for ‘sustainable’ finance.

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Section: A Short History Of Esgmentioning

confidence: 99%

ESG: ‘sustainable’ investing and the risk of infrastructural lock-in

Jaspert,

Fichtner,

Petry

2024

Preprint

View full text Add to dashboard Cite

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“…Overall, there are three potential transmission mechanisms for sustainability impact by ESG funds (see Wilkens et al, 2022 for a literature overview): (1) ratings, (2) shareholder engagement, and (3) capital allocation (see Fig. 1).…”

Section: Governance By Esg: the (Potential) Transmission Mechanismsmentioning

confidence: 99%

“…In a similar fashion to research on finance's influence on corporate governance practices (Cioffi, 2009; Monciardini & Conaldi, 2019), this paper aims to assess the governing effects of ESG funds, particularly: How can ESG investing create sustainability impact? According to Wilkens et al (2022: 5), “sustainable investments have an impact if they themselves have a positive effect on reality (such as the real economy, the environment, and society) regarding the respective sustainability goal (‘additivity’).” Consequently, we define sustainability impact as when ESG funds have significant positive effects on the ESG profiles of the firms in their portfolio. In other words, sustainability impact is a change in companies' behavior and real‐world outcomes caused by ESG funds (see Busch et al, 2021).…”

Section: Governance and Esgmentioning

confidence: 99%

“…Importantly, these private ESG standards have governing effects on corporations and thereby potentially influence the sustainability of the “real” economy. This governance by ESG can operate via three potential transmission mechanisms : (1) ratings, (2) shareholder engagement, and (3) capital allocation (see Caldecott et al, 2022; Wilkens et al, 2022). By employing these mechanisms, ESG investing can either have sustainability impact or constitute what we call “ESG gaps” if they remain ineffective or unutilized.…”

Section: Introductionmentioning

confidence: 99%

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Mind the ESG capital allocation gap: The role of index providers, standard‐setting, and “green” indices for the creation of sustainability impact

Fichtner,

Jaspert,

Petry

2023

Regulation & Governance

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Environmental, social, and governance (ESG) funds are among the fastest‐growing investment styles. ESG investing thereby has a governing effect, and a key open question is whether ESG merely reduces risks for investors or whether it can have a sustainability impact and actively contribute to climate transition. This governance through ESG is characterized by three potential transmission mechanisms: ratings, shareholder engagement, and capital allocation. These can create sustainability impact or constitute “ESG gaps” if transmission mechanisms remain ineffective/unutilized. Based on financial data, an investigation of ESG methodologies and expert interviews, we provide a novel ESG market analysis, focusing on the standard‐setting role of a handful of ESG index providers in capital allocation. Our findings highlight that while “Dark Green” indices could have an impact, currently “Broad ESG” indices, which do not meaningfully facilitate sustainability, dominate investing: we call this the “ESG capital allocation gap.” This has important implications, because effective transmission mechanisms are crucial for ESG funds to achieve sustainability impact in the real economy.

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“…Impact investors are particularly prone to facing this challenge due to the very definition of impact investing. In contrast to other sustainable investing strategies, impact investing is explicitly defined by the duality of nonfinancial and financial investment goals that it allows investors to pursue (Kölbel et al, 2020;Hockerts et al, 2022;Wilkens et al, 2023). Nonfinancial goals are thus much more clearly included in investors' motivations for impact investing than they are for other sustainable investing strategies.…”

Section: Introductionmentioning

confidence: 99%