Can Sustainable Investing Save the World? Reviewing the Impact of Investors on Companies

26 Pages Posted: 11 Dec 2018 Last revised: 25 May 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: January 12, 2019

Abstract

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

Kölbel, Julian and Heeb, Florian and Paetzold, Falko and Busch, Timo, Can Sustainable Investing Save the World? Reviewing the Impact of Investors on Companies (January 12, 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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