By Jan Anton van Zanten, Erasmus University Rotterdam, and Robeco, and Bruno Rein, Robeco

Sustainable investing could be a game changer for the SDGs. Around 85% of investors indicate that sustainability is a key consideration in their investment policy. In addition, some USD 30.3 trillion, or 30.9% of global assets under management, is estimated to be invested with some form of sustainability integrated into the investment process. But are investors succeeding in aligning their investment portfolios with the SDGs?

In our latest article, we investigate whether investors are credibly steering capital towards sustainable and away from unsustainable companies. The big picture view that emerges is that there is no archetypal sustainable investor. The world’s largest investors by market size are comparable owners of both sustainable and unsustainable companies. However, there is wide variety in the extent to which other individual investors own equities of (un)sustainable companies. Investigating the data, we scrutinize three drivers of sustainable investing.

Sustainable investing initiatives

Contrary to our expectations, we find that investors that sign up to sustainable investing initiatives do not invest more sustainably compared to non-signatories.

Various sustainable investing initiatives gained prominence in the investment industry. Examples are the Principles for Responsible Investment, the Institutional Investors Group on Climate Change, and Net Zero alliances. Such initiatives aim to induce their members to invest more sustainably. Our findings indicate that signatories invest comparable amounts in sustainable and unsustainable companies as compared to non-signatories. This surprising finding raises questions about the efficacy of such sustainability initiatives.

Normative pressure

Our results suggest that normative pressure can induce investors to invest less in unsustainable companies.

While some investors operate in the public eye, like pension funds and sovereign wealth funds, others face less public scrutiny, like hedge funds. We find that investors that face more normative pressure invest less in unsustainable companies compared to those with fewer normative constraints. This is an important finding that shows that norms can influence financial markets. Such normative pressure induces investors to avoid financing of companies that cause harm, like those violating human rights, causing climate change, or destroying the natural environment. However, normative pressure does not appear to induce additional investment into companies providing solutions for tackling sustainability challenges.

The role of home countries

The geographical roots of investors also play a pivotal role in how much they invest in (un)sustainable companies. Investors from civil law systems and nations committed to the SDGs invest more in sustainable companies. Conversely, counterparts from countries with limited SDG progress showcase a higher ownership in unsustainable companies. These geographical differences highlight the crucial role of legal systems and national commitments in sustainability-oriented investments.

A wake-up call for (sustainable) investors

Our research underscores a looming reality: as the SDGs are slipping through the hourglass, there is a lot of potential for investors to improve their alignment with the Global Goals. Now that sustainable investing is on the rise, we call upon sustainable investing initiatives to investigate how their signatories can invest more sustainably. Additionally, we urge them to explore ways to enhance monitoring and accountability. At the same time, we call for further research exploring how sustainable investment efforts can facilitate a sustainable transition of societies.