The Impact of Impact Investing

Jonathan B. Berk and Jules H. van Binsbergen
Additional contact information
Jonathan B. Berk: Stanford University and NBER
Jules H. van Binsbergen: University of Pennsylvania and NBER

Research Papers from Stanford University, Graduate School of Business

Abstract: We evaluate the quantitative impact of ESG divestitures. For divestitures to have impact they must change the cost of capital of affected firms. We derive a simple expression for the change in the cost of capital as a function of three inputs: (1) the fraction of socially conscious capital, (2) the fraction of targeted firms in the economy and (3) the correlation between the targeted firms and the rest of the stock market. Given the current state of ESG investment we find that the impact on the cost of capital is too small to meaningfully affect real investment decisions. We empirically corroborate these small estimates by studying firm changes in ESG status. When firms are either included or excluded from the leading socially conscious US index (FTSE USA 4Good) we find no detectable effect on the cost of capital. We conclude that current ESG divesture strategies have had little impact and will likely have little impact in the future. Our results suggest that to have impact, instead of divesting, socially conscious investors should invest and exercise their rights of control to change corporate policy.

Date: 2021-10
New Economics Papers: this item is included in nep-cfn and nep-fmk
References: Add references at CitEc
Citations: View citations in EconPapers (22)

Downloads: (external link)
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3909166

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ecl:stabus:3981

Access Statistics for this paper

More papers in Research Papers from Stanford University, Graduate School of Business Contact information at EDIRC.
Bibliographic data for series maintained by ().