Between impact and returns: Private investors and the sustainable development goals

Abstract

We investigate the expectations of wealthy private investors regarding the impact and financial return of sustainable investments. Our paper focuses on the sustainable development goals (SDGs) as a framework for investors' attempts to create impact.We analyze the behavior of 60 high-net-worth individuals (HNWIs), a powerful yet overlooked investor segment. Our results show large allocations in line with the SDGs, which demonstrates these investors' aim of achieving real-word changes. Furthermore, we show that these "impact investors" have a clear preference for SDGs that are associated with high financial returns. As such, we confirm that both impact and attractive financial returns are expected. Our findings provide rich, deep insights into how HNWIs practice impact investing and their underlying motivations. We outline practical implications for different stakeholders, notably regarding the fact that financially attractive SDGs are likely to attract substantial amounts of capital, with other SDGs remaining underfunded.

Is ESG mutual fund quality in the eye of the beholder? An experimental study of investor responses to ESG fund strategies

“…The markedly changing supply side, with a variety of ESG‐profiled mutual funds, forms a starting point for an investigation into perceived quality differences. In understanding the decision to invest in a mutual fund managed in accordance with ESG‐standards, the duality between retail investors' financial interest (including financial expectations) and sustainability (including non‐financial expectations) plays a critical role (Paetzold et al, 2022; Rossi et al, 2019). Investing in sustainable mutual funds are commonly framed in both financial and socially responsible terms, either as a way of creating long‐term return, or as a way to contribute to society (Sandberg & Sjöström, 2021).…”

The added value and differentiation among ESG investment strategies in stock markets

“…Thematic investing focus on a single ESG‐related issue, such as clean energy, low‐carbon technologies, female leadership, or board governance. Impact investing, in turn, consists of investing in projects designed to achieve specific measurable goals, with the focus being less on generating higher risk‐adjusted financial returns and more on using capital to create positive changes in the world (Paetzold et al, 2022). Finally, active ownership, also known as corporate engagement, entails using ownership rights to directly engage with companies on ESG issues, aiming at changes in behavior, practices and/or policies (GSIA, 2021).…”

Strategic engagement of business with Sustainable Development Goals: A systems thinking approach

“…A key challenge of business engagement with related SDGs has been whether businesses could offer a competitive value proposition, while simultaneously advancing equitable social welfare and ecological integrity (Hoffman, 2018). However, there has been limited research on how businesses have been able to operate with a new paradigm of systems and create new markets with respect to advancing UN SDGs (see review by Mio et al, 2020; Boelsen‐Robinson et al, 2021; Maltz & Pierson, 2022; Paetzold et al, 2022; Suryani et al, 2022).…”

“…Although it is debatable why and to what extent private companies engage with the SDGs, there might be three principal challenges relevant to the private sector's engagement with the SDGs. First, it may be unclear whether most businesses could recognize sufficient benefits by altering their profitmaking goals in favor of advancing global sustainable development, particularly given potentially conflicting financial promises to shareholders (Paetzold et al, 2022). Second, it is not straightforward to implement a business strategy that could deliver the SDGs because the SDGs target complex and dynamic socio‐ecological challenges (Bergman et al, 2017).…”

“…To address these systemic challenges, this article proposes a systems thinking approach (systemic purpose, diverse elements, interconnections, and interdependencies) to explore the business goals and understand their impact on the natural and social systems in which they operate, allowing them to address the profit–impact conflict while expanding sustainability practices and engaging in UN SDGs (Boelsen‐Robinson et al, 2021; Maltz & Pierson, 2022; Paetzold et al, 2022; Suryani et al, 2022). In this context, the objective is to understand how the business goals and decisions might align with an organization's purpose for socio‐ecological impact and the resulting goal–purpose alignment might enhance its engagement with UN SDGs , while leveraging the resources and dynamics of the system.…”