It's super important to be thinking about the actual impact of impact investing. There's a lot of rhetoric out there that's not backed up, and this paper does a good job of pointing out that in public markets, investing doesn't impact stock price. That said, there's a few things related to public market investing that could use some more investigation.
1. I don't think many public equity impact investors see their primary means of impact as shifting stock price. They create impact through your point 6 - signaling and improving ... (read more)
[Speaking for myself here not necessarily Hauke.] Hello thanks for these smart comments.
1. Although there is some evidence that the indirect effects of campaigns are more substantial, the evidence isn't all that good as divestment campaigns were often combined with boycotts and other campaigns. Secondly, take the example of Norway's sovereign wealth fund, where tobacco divestment cost them $2bn. I would be very surprised if the indirect effects of this gesture would have been more damaging for the tobacco industry than spending the money directly on campaigns against tobacco, which looks a highly cost-effective approach. The aim of the divestment campaign would be to raise awareness among governments presumably, but if that is your aim, it seems to make sense to try to do that directly through ordinary advocacy approaches. I agree that the report could have been clearer on this.
2. The argument in that section was that genuinely strict socially responsible investing would involve financial sacrifice, and ESG-focused screening is not strict. Many socially responsible today don't exclude all companies in harmful industries. Generally, there is a dilemma for proponents of SRI. SRI is supposed to affect the cost of capital of harmful industries. If it succeeds, then the stock price of these companies will be higher than otherwise and people who invest in them will be able to make excess returns.
It's super important to be thinking about the actual impact of impact investing. There's a lot of rhetoric out there that's not backed up, and this paper does a good job of pointing out that in public markets, investing doesn't impact stock price. That said, there's a few things related to public market investing that could use some more investigation.
1. I don't think many public equity impact investors see their primary means of impact as shifting stock price. They create impact through your point 6 - signaling and improving ... (read more)