Can Sustainable Investing Save the World? Reviewing the Impact of Investors on Companies
26 Pages Posted: 11 Dec 2018 Last revised: 25 May 2019
Date Written: January 12, 2019
This article asks how sustainable investing can effectively contribute to societal goals. It conducts a literature review of the impact that investors have on companies’ environmental and social performance, distinguishing three mechanisms: shareholder engagement impact, capital allocation impact, and indirect impacts. The shareholder engagement impact is well established, the capital allocation impact remains uncertain and depends on specific circumstances, and indirect impacts are very uncertain. The results imply that the current practice of SI has only modest investor impact and we suggest that sustainable investors could increase their impact by expanding shareholder engagement, by focusing on widely shared priority issues, and by targeting companies that depend on external capital. We also suggest that the potential of SI lies more in diffusing good business practices than in transforming business models. For future research, we highlight the need for investor impact metrics and outline steps to progress towards this goal.
Keywords: Sustainable Investment; Impact; Causality; Literature Review; Sustainable Development Goals (SDGs)
JEL Classification: A13, G11, G12, Q51, Q56
Suggested Citation: Suggested Citation