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

What is it about?

This paper outlines how the perspective in the socially responsible investment (SRI) industry has shifted from avoidance to impact. It emphasizes the importance of now also changing the strategies of SRI products.Based on an extensive review of the SRI literature, various SRI strategies are theoretically evaluated Subsequently, a best practice example of a bank that applies a sophisticated engagement strategy is presented.It is shown that there are indeed severe differences in the effects of exclusion, positive approaches, and shareholder engagement. Impact-oriented investment products should employ engagement strategies.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.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”. 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.

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