Does Sustainable Investing Work?

For a while it seemed like the differences between these perspectives weren’t important. Sustainable investing could outperform, align with your values, and achieve impact: win, win, win! But if it seems too good to be true it probably is. Recent politically motivated pushback in the US has combined with a short period of sustainable fund underperformance and legitimate concerns about fiduciary duty to create an environment where more rigour is required in answering the question: what is sustainable investing and what can it achieve?

The diversity of reactions to this increased scrutiny are interesting. Some have claimed that sustainable investing was really never about impact but all about managing financial risks and opportunities. Others have doubled down on the necessity of the investment industry being a force for good in meeting society’s challenges and have argued for a change in definition of fiduciary duty if that is what’s required to square the circle. Yet others have stuck doggedly to the win-win narrative: that what is good for people and planet must be good, at least in the long term, for your wallet.

Our view is that a significant number of purchasers of sustainable funds, or sponsors of sustainable mandates, do believe that in so doing they are having some impact on ameliorating some of the serious problems we face. This desire to have impact through investments has fuelled a sustainable investing marketing boom, as turning the pages of any weekend financial supplement will show you. Regulators certainly think so, with the EU, UK, and US all reviewing or introducing disclosure or labelling regimes relating to sustainable investment and anti-greenwashing rules.

But can sustainable investing have impact, and, if so, on what and in what circumstances? As long-term practitioners now flirting with academia, we see ECGI as being the perfect environment in which to have this debate; an environment that brings together the leading academics in the field with investment professionals and advisers who grapple with these issues day to day in their work. While we don’t claim to have the depth of knowledge and expertise of academics who have been producing cutting edge research for many years, our practitioner experience perhaps enables us to bring a different perspective: what does all this research mean in the real world? 

So, in this project, which we are now introducing in this blog, we have reviewed a wide range of academic papers and practitioner articles on sustainable investing to try to answer the question: does it work? Although this is not intended to be a formal academic literature review (and so you won’t find hundreds of footnotes or references here) we do provide a short guide to the literature on sustainable investing. We hope that this will be a useful entry point for practitioners wanting to access and learn about the literature in this area.  

Over the course of three articles we share our headline findings, hoping to provoke reaction, criticism, alternative views and, just maybe, some support.