Asking the Big Question: Can Sustainable Investing Save the World?


As the globe grapples with the economic impacts of the Covid-19 crisis, impact investors have been faced with a brutal question: why was the world so ill-prepared? Investments deemed sustainable have grown year by year, yet the crisis shed light on vulnerabilities ranging from preparedness to workers' rights. As the world gears itself for a new normal, questions on maximizing real-world impact weigh more than before. These are questions a fresh research paper from the Center for Sustainable Finance and Private Wealth seeks to answer.

When the research group started working on the paper Can Sustainable Investing Save the World? Reviewing the Mechanisms of Investor Impact sustainable investing was a buzzword that had gained momentum for years. In 2018, the sustainable investing sector represented a 30.7 trillion US dollar market with strong prognoses for growth. The past months have seen historical volatility in the stock markets, yet sustainable investments have weathered the crisis better than their standard counterparts. Sustainable investments are indeed doing well. But the doing good part still lacks its backing.

“For years research has focused on the financial performance of sustainable investing. We wanted to steer the discussion toward the impact of sustainable investing. This means zoom in on the change enabled by these investments,” Florian Heeb, one of the researchers behind the paper, says.

The paper is based on a literature review and distinguishes three impact mechanisms: shareholder engagement, capital allocation, and indirect impacts. The paper concludes that the impact of shareholder engagement is well supported in academic literature, the impact of capital allocation only partially, and indirect impacts lack empirical support.

With this in mind, the paper poses a clear question: Can sustainable investing save the world? The answer strives for equal clarity: sustainable investing has the potential of making an important contribution toward solving global challenges — but falls short of its promise as it is today.

CSP researcher and one of the writers of the paper, Florian Heeb, presents research outcomes at the semester opening of the University of Zurich in September 2019.

From company impact to investor impact to real-world change

According to the Global Sustainable Investment Alliance, approximately 50% of sustainable investments apply screening as their main investment selection criteria. This means investors screen out funds and companies that lack the set social, environmental, and governance (ESG) criterion or rating.

The screening criteria and ratings tend to be based on company impact or the impact a company has on the planet and its people. For example, if a company sells products that reduce CO2 emissions, it has a positive impact on the world by reducing greenhouse gas emissions. Most likely, a company like this would have a good ESG rating too.

Even though screening is standard practice in the sustainable investing sector, the paper found screening, an approach falling under the mechanism of capital allocation, to have limited real-world impact. Screening approaches only rarely pushed for change towards the better.

The Global Sustainable Investment Alliance report also noted that 18% of sustainable investments apply some form of shareholder engagement in their processes. The figure drops to 10% in the United States. Shareholder engagement refers to shareholders taking an active role in the companies they are invested in, for example, by using their ability to vote to push the company to implement emission-reducing measures. Based on research findings, shareholder engagement is the most effective and efficient mechanism for bringing about real-world change or impact.

Shareholder engagement is an example of what the researchers call investor impact. Investor impact is the change in company impact caused by an investor. On the other hand, if an investment enables a company to sell more products that reduce CO2 emissions, the investor has also had a positive impact on the company, this time through capital allocation.

The graph highlights the three mechanisms of investor impact investigated in the report: Shareholder Engagement, Capital Allocation, and Indirect Impacts. The paper found Engagement to be the mechanism to have the clearest academically backed impact. Capital Allocation represented moderate impact and Indirect Impact lacked academic impact almost entirely.

“Investor impact may seem complex at first. But there are simple recommendations investors can follow. Firstly, make sure to vote on your shares and engage with the management of your public equities. Secondly, as far as your risk capacity allows, provide capital for young impactful companies that struggle to get the funding they need to grow. Thirdly, screen out companies that violate basic norms. And finally, be vocal about what you do and how you invest. These are all good first steps,” Heeb explains.

In terms of walking the talk, every step counts.

Claiming “impact” is not a synonym for having “impact”

Before publication, the paper was available on SSRN, one of the biggest online academic research repositories. In a year, the paper had made its way to the top 1% of the most downloaded papers. A clear indication of the need for evidence for the impact of sustainable investing.

“More and more financial products promise impact. Too often the promise comes without transparent evidence as to why this specific product would bring about change,” Heeb elaborates.

Despite the clear findings of the paper, Heeb is hesitant to jump to blunt conclusions. Even in impact investing, one-size-fits-all tools are scarce. In reality, having impact as an investor usually takes a hybrid form with elements ranging from voting and engagement to public statements. For example, despite the lack of evidence on the impact of demonstrations and public statements, campaigns and endorsements might act as the final push that steer public debate to favor sustainability or push other investors to consider sustainability in their decision-making.

“Sustainable investing has the potential to change the world. There is no question about that. But this does not mean that the ball is on the investor’s court alone,” Heeb reminds.

Pushing sustainable investing from a niche to the mainstream relies on the orchestrated efforts of actors ranging from investors to rating agencies to policymakers. Rating agencies are critical in providing information on what has impact and what not. Policymakers in turn are pivotal in making non-sustainable activities non-profitable businesses.

“Demands for evidence-based impact claims, information on what works, and infrastructures that make sustainability mainstream are all steps that lead to impact. These are the building blocks of real-world change,” Heeb concludes.

Read the full paper here.
Have a look at the summary of the key findings here.

Can Sustainable Investing Save the World? Reviewing the Mechanisms of Investor Impact is an academic paper written by Julian F. Kölbel, Florian Heeb, Falko Paetzold, and Timo Busch and published in Organization & Environment in June 2020.

Julian Kölbel is a postdoctoral researcher at the Center for Sustainable Finance and Private Wealth at the University of Zurich and a research affiliate at MIT Sloan. He obtained his PhD from ETH Zurich.

Florian Heeb is a researcher at the Center for Sustainable Finance and Private Wealth at the University of Zurich. He holds a master’s degree in environmental science from ETH Zurich. Before joining CSP, he worked in the executive management of South Pole, a leading provider of sustainability financing solutions, where he built up and managed a global team of sustainability experts.

Falko Paetzold is the director of the Center for Sustainable Finance and Private Wealth at the University of Zurich. He was a research affiliate and lecturer at ETH Zurich, fellow at Harvard University, and a postdoctoral researcher at MIT Sloan.

Timo Busch is a full professor at the School of Business, Economics and Social Science of the University of Hamburg and Senior Fellow at the Center for Sustainable Finance and Private Wealth of the University of Zurich. Before he worked as lecturer for ETH Zürich and project manager for the Wuppertal Institute for Climate, Environment and Energy.

For more information and questions, reach out to CSP’s Head of Comms, Anna Tervahartiala at



Center for Sustainable Finance and Private Wealth

CSP is a research center at UZH. We conduct research and train wealth owners & investment professionals in order to move capital towards sustainable growth.