Can Sustainable Investing Save the World? Reviewing the Mechanisms of Investor Impact
32 Pages Posted: 11 Dec 2018 Last revised: 1 Aug 2019
Date Written: July 20, 2019
This article asks how sustainable investing (SI) can effectively contribute to the achievement of societal goals. It conducts a literature review on investor impact, that is to say, the change that investors trigger in companies’ environmental and social impact. We distinguish three mechanisms of investor impact: shareholder engagement, capital allocation, and indirect impacts. The impact of shareholder engagement is well supported; the impact of capital allocation is partially supported; indirect impacts have little support in academic literature to date. These results suggest that sustainable investors could increase their impact by expanding shareholder engagement, by coordinating screening approaches on specific business practices that are easy to implement for companies, and by targeting companies whose growth is limited by external financing conditions. For rating agencies, we outline steps to develop investor impact metrics. For policymakers, we highlight that the potential of SI lies in diffusing good business practices rather than transforming industries.
Keywords: Sustainable Investment; Impact; Causality; Literature Review; Sustainable Development Goals (SDGs)
JEL Classification: A13, G11, G12, Q51, Q56
Suggested Citation: Suggested Citation