Beyond Returns: Investigating the Social and Environmental Impact of Sustainable Investing

29 Pages Posted: 11 Dec 2018

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: November 23, 2018

Abstract

While many studies have examined the financial performance of sustainable investing (SI), little is known about the social and environmental impact of SI. We address this research gap in a multi-disciplinary literature review. We begin by developing a definition of investment impact, and a framework that clarifies the relationship between an investor’s impact on a company and a company’s impact on the real world. Focusing on investor impact, the literature review brings together evidence on three mechanisms: shareholder engagement impact, capital allocation impact, and indirect impacts. We find direct evidence that investors can affect companies through shareholder engagement, especially when the costs of demanded reforms are low, investors wield influence, and companies have prior experience with engagement. We find only indirect evidence for the capital allocation impact, yet studies indicate that this impact is more likely when SI investors hold a large market share, deviate strongly from the market portfolio, and focus on assets that are hard to substitute. The capital allocation impact is also more likely when companies depend on external financing for growth, and when the cost of conforming with the expectations of SI investors is low. Indirect effects, where investors rely on intermediaries to influence companies, have little support in the literature. Our results suggest that investors can increase their impact by expanding engagement efforts, by focusing on widely shared priority issues, making sure these issues are assessed consistently, and by targeting markets where external capital is a limiting factor.

Keywords: Sustainable Investment; Impact; Causality; Literature Review; Sustainability

JEL Classification: A13, G11, G12, Q51, Q56

Suggested Citation

Kölbel, Julian and Heeb, Florian and Paetzold, Falko and Busch, Timo, Beyond Returns: Investigating the Social and Environmental Impact of Sustainable Investing (November 23, 2018). 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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