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

34 Pages Posted: 11 Dec 2018 Last revised: 23 Oct 2019

See all articles by Julian F Kölbel

Julian F Kölbel

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

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) contributes to societal goals, conducting a literature review on investor impact—that is, the change investors trigger in companies’ environmental and social impact. We distinguish three impact mechanisms: shareholder engagement, capital allocation, and indirect impacts, concluding that the impact of shareholder engagement is well supported in the literature, the impact of capital allocation only partially, and indirect impacts lack empirical support. Our results suggest that investors who seek impact should pursue shareholder engagement throughout their portfolio, allocate capital to sustainable companies whose growth is limited by external financing conditions, and screen out companies based on the absence of specific ESG practices that can be adopted at reasonable costs. For rating agencies, we outline steps to develop investor impact metrics. For policymakers, we highlight that SI helps to diffuse good business practices, but is unlikely to drive a deeper transformation without additional policy measures.

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)

University of Zurich, Department of Banking and Finance

Schönberggasse 1
Zurich
Switzerland

MIT Sloan ( email )

100 Main Street
Cambridge, MA 02142
United States

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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