Abstract
Practitioners and academics have been using different terms to describe investments in the sustainability context. The latest inflationary term is impact investments—investments that focus on real-world changes in terms of solving social challenges and/or mitigating ecological degradation. At the core of this definition is an emphasis on transformational changes. However, the term impact investment is often used interchangeably for any investment that incorporates environmental, social, and governance (ESG) aspects. In the latter instance, achieving transformational change is not the main purpose of such investments, which therefore carries the risk of impact washing (akin to “green washing”). To offer (re-)orientation from an academic perspective, we derive a new typology of sustainable investments. This typology delivers a precise definition of what impact investments are and what they should cover. As one central contribution, we propose distinguishing between impact-aligned investments and impact-generating investments. Based on these insights, we hope to lay the foundation for future research and debates in the field of impact investing by practitioners, policymakers, and academics alike.
Highlights
Regulators, asset owners, and managers increasingly ask: Do sustainable investments contribute to a better world? We use sustainable investments as a generic umbrella term for investments that incorporate environmental, social, and governance (ESG) aspects in investment decisions (Busch et al 2016)
Profit-making should be consistent with the development of human, social, and cultural capital. Based on this general understanding of what any sustainable investment ideally comprise, we propose a typology of four distinct dimensions along which investments can be distinguished (Table 1)
Financial markets experienced a substantial mainstreaming of sustainabilityrelated investment practices in recent years
Summary
We use sustainable investments as a generic umbrella term for investments that incorporate environmental, social, and governance (ESG) aspects in investment decisions (Busch et al 2016). Regulators, asset owners, and managers increasingly ask: Do sustainable investments contribute to a better world? We deliberately choose this generic term for four reasons: first, it is a well-established term in popular market
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