Claiming Legitimacy: Impact vs. ESG Investing

55 Pages Posted: 15 Sep 2022 Last revised: 22 Jan 2024

See all articles by Theodor Cojoianu

Theodor Cojoianu

Edinburgh Business School - The University of Edinburgh

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin; European Commission - DG FISMA

Yanan Lin

UCD Michael Smurfit Graduate Business School

Fabiola Schneider

University College Dublin (UCD); European Commission's Platform on Sustainable Finance

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

Cojoianu, Theodor and Hoepner, Andreas G. F. and Lin, Yanan and Schneider, Fabiola, Claiming Legitimacy: Impact vs. ESG Investing (August 1, 2022). Available at SSRN: https://ssrn.com/abstract=4106603 or http://dx.doi.org/10.2139/ssrn.4106603

Theodor Cojoianu

Edinburgh Business School - The University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

Andreas G. F. Hoepner

Smurfit Graduate Business School, University College Dublin ( email )

Blackrock, Co. Dublin
Ireland

European Commission - DG FISMA ( email )

2 Rue de Spa
Brussels, 1000
Belgium

Yanan Lin

UCD Michael Smurfit Graduate Business School ( email )

UCD Michael Smurfit Graduate Business School
Carysfort Ave.,Blackrock
Dublin, Dublin 4
Ireland

HOME PAGE: http://https://people.ucd.ie/yanan.lin

Fabiola Schneider (Contact Author)

University College Dublin (UCD) ( email )

Belfield
Belfield, Dublin 4 4
Ireland

European Commission's Platform on Sustainable Finance

2 Rue de Spa
Brussels, 1000
Belgium

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