The Impact of Impact Investing

37 Pages Posted: 23 Aug 2021 Last revised: 10 Jun 2022

See all articles by Jonathan Berk

Jonathan Berk

Stanford Graduate School of Business; National Bureau of Economic Research (NBER)

Jules H. van Binsbergen

University of Pennsylvania - The Wharton School; National Bureau of Economic Research (NBER)

Date Written: August 21, 2021

Abstract

The change in the cost of capital that results from a divestiture strategy can be closely approximated as a simple linear function of three parameters: (1) the fraction of socially conscious capital, (2) the fraction of targeted firms in the economy and (3) the return correlation between the targeted firms and the rest of the stock market. When calibrated to current data, we demonstrate that the impact on the cost of capital is too small to meaningfully affect real investment decisions. We empirically corroborate these small estimates by
studying firm changes in ESG status and are unable to detect an impact of ESG divestiture strategies on the price or cost of capital of treated firms. Our results suggest that to have impact, instead of divesting, socially conscious investors should invest and exercise their rights of control to change corporate policy.

Keywords: ESG, Impact Investing, Environmental, Social, Governance

JEL Classification: G11

Suggested Citation

Berk, Jonathan B. and van Binsbergen, Jules H., The Impact of Impact Investing (August 21, 2021). Stanford University Graduate School of Business Research Paper , Law & Economics Center at George Mason University Scalia Law School Research Paper Series No. 22-008, Available at SSRN: https://ssrn.com/abstract=3909166 or http://dx.doi.org/10.2139/ssrn.3909166

Jonathan B. Berk (Contact Author)

Stanford Graduate School of Business ( email )

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Stanford, CA 94305-5015
United States

National Bureau of Economic Research (NBER)

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Jules H. Van Binsbergen

University of Pennsylvania - The Wharton School ( email )

3641 Locust Walk
Philadelphia, PA 19104-6365
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/jules_vanbinsbergen

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