Does sustainable investing work? A literature review


Here’s a note from Harald Walkate about this three-part series:

Tom Gosling and I have long been advocates of evidence-based approaches in sustainable investing (SI) and also aim to bridge the gap between academia and practice in this area. Which is why we took particular care to explain our approach to the relevant literature for our recent series of articles “Does Sustainable Investing Work?” and wrote up a separate piece on this: “Does sustainable investing work? A literature review.”

A brief summary of some of the key points we make in this review:

– There’s so much research coming out, practitioners can be forgiven for not seeing the forest for the trees. We want to provide readers with a selection of some of the most relevant papers.

– Practitioners who want to know what the evidence says on efficacy of SI approaches cannot rely on any single paper – rather, each paper should be seen as a tile in a mosaic which as a whole can give an indication of what works in SI, and what doesn’t.

– Even when taken as a whole, it can be difficult to draw practical guidance from the academic literature, for example because academics are often interested primarily in statistical significance, whereas practitioners should care more about economic significance.

– Many papers only focus on the first stages in the ‘chain of causality’ of SI; i.e., they look mostly at the direct effects of SI approaches, not at the bigger picture, or system-level, effects. And often, when direct effects are observed, the papers already conclude that the activity in question ‘works.’

This is why we introduce the 3-stage rocket analogy in our series: it helps the practitioner understand that what (s)he is trying to achieve likely involves more than direct (or stage 1) effects, and what the evidence tells us is needed to achieve stage 2 and stage 3 effects.

Tom said in a recent post: “I’ve always been interested in studying the effectiveness of sustainable investing tools – not to undermine the enterprise, but rather to encourage a debate about where it’s best to focus our efforts.” I fully second this sentiment and hope that our Literature Review and 3 stage rocket analogy can usefully contribute to this debate.