Analysis: Why Divestment Doesn’t Hurt ‘Dirty’ Companies
Impact investing is exploding. In 2020, the World Bank’s International Finance Corporation tallied $2.3 trillion in global investments intended to generate social and environmental returns alongside financial ones. The US SIF Foundation, a hub for sustainable and impact investing, estimates that total U.S. assets under management using environmental, social, and governance (ESG) criteria grew by 42% from 2018 to 2020.
So is all that investment having an impact? Jonathan B. Berk, a professor of finance at Stanford Graduate School of Business, is skeptical.
In a new paper, Berk and Jules van Binsbergenopen in new window, a colleague at the Wharton School, demonstrate that one of the most popular impact-investing strategies — divesting from “dirty” companies that fail to meet ESG criteria — is not nearly as impactful as its practitioners might like to believe.
Photo courtesy of geralt.