Claiming Legitimacy: Impact vs. ESG Investing
55 Pages Posted: 15 Sep 2022 Last revised: 22 Jan 2024
Date Written: August 1, 2022
Abstract
Impact investment firms pursue both the achievement of positive impact and the delivery of financial returns. They are thus distinct from investment firms which only follow commercial objectives and consider environmental, social and governance (ESG) factors from the perspective of financial risks and opportunities. While ESG investing has become mainstream, impact investment and the underlying double materiality has yet to be institutionalised and legitimized. Using private market data from Preqin in combination with statements made by private market investment firms on their websites, we investigate how impact investment firms claim legitimacy compared to their ESG peers. Given that impact investment is still a nascent field it suffers from a heavier burden of proof and legitimacy has been recognised as a strategy to overcome the liability of newness. We find impact investment firms distinct themselves from philanthropy, which is more likely to be claimed to be undertaken by ESG investing firms, in addition to their core ESG risk management approach. Additionally, we find that impact investment firms are more likely to claim to be involved in partnerships, in particular with academia and corporations. We explain this as complimentary sources of legitimacy for both objectives in the dual goal of impact investment firms: Corporations can give legitimacy to the commercial angle while academia can aid legitimizing the measurement of positive impact. Relatedly, we find that impact investment firms lay more emphasis on expertise and being data driven on their websites. Lastly, we investigate whether impact investment firms seek legitimacy through claiming investment in certain fields and find significant results for Green Technology, Biodiversity, Education, Agriculture, and Water.
Keywords: Impact Investing, Legitimacy, Responsible Investment, ESG
JEL Classification: G24; L26; L31;O35; Q01; Q56
Suggested Citation: Suggested Citation