Can Sustainable Investing Save the World? Reviewing the Mechanisms of Investor Impact

32 Pages Posted: 11 Dec 2018 Last revised: 1 Aug 2019

See all articles by Julian F Kölbel

Julian F Kölbel

MIT Sloan; University of Zurich, Department of Banking and Finance

Florian Heeb

University of Zurich, Department of Banking and Finance

Falko Paetzold

Center for Sustainable Finance and Private Wealth

Timo Busch

University of Hamburg

Date Written: July 20, 2019

Abstract

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

Kölbel, Julian and Heeb, Florian and Paetzold, Falko and Busch, Timo, Can Sustainable Investing Save the World? Reviewing the Mechanisms of Investor Impact (July 20, 2019). Available at SSRN: https://ssrn.com/abstract=3289544 or http://dx.doi.org/10.2139/ssrn.3289544

Julian Kölbel (Contact Author)

MIT Sloan ( email )

100 Main Street
Cambridge, MA 02142
United States

University of Zurich, Department of Banking and Finance

Schönberggasse 1
Zurich
Switzerland

Florian Heeb

University of Zurich, Department of Banking and Finance ( email )

Schönberggasse 1
Zurich
Switzerland

Falko Paetzold

Center for Sustainable Finance and Private Wealth ( email )

Plattenstr 32
Zurich, 8032
Switzerland

HOME PAGE: http://www.csp.uzh.ch

Timo Busch

University of Hamburg ( email )

Allende-Platz 1
Hamburg, 20146
Germany

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