The effectiveness of sustainable investing has been challenged, with critics like Tariq Fancy describing it as a mere placebo. Amidst rising skepticism and stricter disclosure requirements, a deeper dive reveals that traditional methods of influencing companies, namely “voice” (shareholder engagement) and “exit” (portfolio screening), are not exhaustive. Through a comprehensive review of over 3,500 research papers, a new approach — “field building” — emerges. This tactic acknowledges the interconnected web of stakeholders around companies, termed “fields”, that profoundly influence corporate behavior. By reshaping these fields, investors can indirectly drive sustainable change in firms. Five tactics are highlighted: (1) Shifting other investors’ evaluation of issues, (2) Sharing expertise, (3) Delegitimizing certain business activities, (4) Establishing voluntary standards, and (5) Supporting regulatory changes. While promising, field-building presents challenges like profitability and political exposure. Yet, by embracing this expanded toolkit, investors can magnify their positive impact and appeal to an increasingly conscious investment clientele.
Whether sustainable investors can have a positive impact on business and society has been the center of debate in recent years. One major obstacle holding sustainable investing back from maximizing its impact is that most investors operate with too narrow of an understanding of how impact can come about. Most investors believe they have two primary ways to influence companies. First, there’s portfolio screening, often termed “exit.
We have found five tactics for field building that sustainable investors can use to increase their impact.As a first tactic for field building, investors can shift other investors’ evaluation of environmental and social issues. By publicly and continuously highlighting these environmental and social issues, an investor can raise attention to environmental and social issues among other investors and thereby motivate these other investors to influence companies.
The international asset manager Robeco has used this tactic since August 2022, when it made its SDG framework openly accessible. This framework assesses the degree to which over 2,900 companies advance or undermine the 17 sustainable development goals . Having used the framework internally since 2018, Robeco’s decision to make their SDG framework open access not only establishes Robeco as a leader in that space.
Some investors have used this tactic to shape the upcoming European Sustainability Reporting Standards, which will be mandatory for all companies operating in the European Union from 2028 onwards. While the April 2022 draft of this law contained strict disclosure requirements, the number of disclosure requirements were weakened in a subsequent draft due to pushback from companies.
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