Impact case or impact washing? An analysis of investors’ strategies to influence corporate behavior

Abstract

Purpose

This paper aims to substantiate the premise that the very task of socially responsible investment (SRI) today is to achieve impact. Based on extensive empirical studies on how different strategies deliver on this impact premise, it recommends changing the current strategy mix from a focus on exclusion to shareholder engagement.

Design/methodology/approach

Based on an extensive review of the SRI literature, various SRI strategies are theoretically evaluated. Subsequently, an example of a bank that applies a sophisticated engagement strategy is presented.

Findings

It is shown that there are indeed severe differences in the effects of exclusion, positive approaches and shareholder engagement. Impact-oriented investment products should use engagement strategies.

Practical implications

By providing an empirically based rationale for shareholder engagement, this article gives those who practice it a moral and economic justification. Instead of having to defend why there are seemingly unethical companies in their portfolio, they can go on the offense and counter that the “pure” role models are actually “impact washers”.

Social implications

By emphasizing the primacy of the impact of investment products, the transmission mechanism of the capital market to create positive change for the environment and society is strengthened. This should lead to improvements in both areas.

Originality/value

While there are some other studies that examine investor impact in some way, they often do so in a context that is unrelated of sustainable investments. This study structures the empirical evidence on the effectiveness of exclusion, positive approaches and shareholder engagement and provides a recommended course of action for investors and policymakers.

Citation

Diener, J. (2023), "Impact case or impact washing? An analysis of investors’ strategies to influence corporate behavior", Sustainability Accounting, Management and Policy Journal, Vol. 14 No. 5, pp. 1002-1021. https://doi.org/10.1108/SAMPJ-02-2022-0088