Reference Number DT2021-11

Deep Transitions Working Paper Series

The Promise Of Transformative
Investment: Mapping The Field Of
Sustainability Investing
Caetano C. R. Penna, Johan Schot and W. Edward Steinmueller

The Promise Of Transformative Investment:
Mapping The Field Of Sustainability Investing
Caetano C. R. Penna, Johan Schot and W. Edward Steinmueller

DT working paper series reference number

DT2021-11

Publication

Nov 2021

Number of pages

31

Persistent paper URL

https://deeptransitions.net/publication/the-promiseof-transformative-investment-mapping-the-field-ofsustainability-investing/

Email address corresponding author

c.christopherosadopenna@uu.nl

Address

Utrecht University Centre for Global Challenges,
Janskerkhof 2-3A, 3512 BK Utrecht, The Netherlands

2

The Promise Of Transformative Investment:
Mapping The Field Of Sustainability Investing
Caetano C. R. Pennaa,b, Johan Schota and W. Edward Steinmuellerc
a Centre for Global Challenges, Utrecht University
b Institute of Economics, Federal University of Rio de Janeiroc Science Policy Research Unit (SPRU), Sussex University

Abstract
This paper addresses the question: How can private finance be mobilized for sociotechnicalsustainability transitions? In answering this question, maps the sustainability investment literature,
which leads to four propositions: (1) The literature on sustainability investing coevolved with corporatesocial responsibility theory and with the practice and events of the field, revealing four distinctive
waves of “sustainable investing”; (2) Each wave of sustainability investing triggers new investment
strategies, while propelling preceding ones upwards (‘tidal effect’); (3) Sustainability investing
strategies can be classified into certain categories, namely: (a) approach (top down/ investment
thesis or bottom up/ valuation); (b) orientation (mitigating negative externalities or inducing positive
externalities); (c) return on investment (from zero to risk-adjusted); and (4) We may be witnessing
the emergence of a fifth wave of sustainability investing triggered by new research and practices on“impact investing”. We discuss these propositions against sociotechnical sustainability transitions’
theory.

Highlights••••

Provides an overview of the evolution of the sustainability investing field of research and practice.
Develops four propositions on how the sustainability investing field evolved.
Discusses the propositions from a sociotechnical transition perspective.
Calls for a bridging between the literature on sustainable investment and finance and sociotechnicaltransitions.

Keywords
sustainability investing, financing transformative change, sociotechnical transitions

1. Introduction
This paper discusses sustainability investing strategies from a sociotechnical transition perspective,
tackling the neglected topic of financing sustainability transitions. Mobilizing finance is key topromoting the “connected and sustained fundamental transformations” of sociotechnical systems
that are needed for the emergence and acceleration of a “Deep Transition” (Schot and Kanger,2018), away from the socially unequal and environmentally destructive directionality of the current“techno-economic paradigm” (Perez, 2010). Because any changes (and most innovations) that leadto a sociotechnical transition will require funding, addressing this gap in the sociotechnical transitions
research field seems both timely and urgent.
Estimating the financial needs for the transformative change in sociotechnical systems to achievea deep transition to sustainability is a challenging exercise. The type of required transformations forvarious systems are highly contested, accordingly no agreement exists about desirable directions
and, therefore, investments. Even if there were an agreement among various actors, the likelyinterconnections, overlapping, trade-offs and synergies still would make the analysis very complex:
estimates of the “sustainability funding gap” should not be regarded as definitive but illustrative.

3

Using the United Nations 17 Sustainable Development Goals (SDGs) – which call for sustainable forms
of production, consumption and distribution – as a proxy for those transformative directions andrequired system changes can indicate the amount needed (Figure 1): the United Nations Conference
on Trade and Development (UNCTAD) estimates the financial needs for achieving the SDGs at USD
5-7.5 trillion per year, with emerging markets and developing countries requiring investments of USD
3.3-4.5 trillion per year1 (UNCTAD, 2014). In those developing economies, the financial gap – considering
the availability of international and domestic public and private finance for “SDG sectors”2 – stands
at USD 2.5 trillion per year.
Figure 1: SDG annual investment gap

Source: Based on UNCTAD (2014)

While estimates vary depending on underlying assumptions and methodologies3, the message is clear:
the financial needs for promoting sustainability transitions are huge.4 Meeting those needs will not
only require a very substantial increase in the levels of both public and private investments acrossthe globe, but also more focus from investors on sustainability transitions. What might lead to thischange and what barriers impede increases in the level of and nature of sustainability transition
investments worldwide? These questions have been addressed only marginally in the sociotechnical(sustainability) transitions field.
The number of peer-reviewed articles dealing with finance within the field of sociotechnical transitions
is relatively small. Adopting a modified search string based on Markard et al. (2012) to identify in the
Scopus database peer reviewed articles that discussed sociotechnical transitions results in 3,494 hits.
Yet, those whose core focus is finance5 amount to 96 (2.7%) only6. Comparing these results with thenumber of articles dealing with other regimes such as energy (631) or transport/mobility (521) reveals
the little attention that the financial regime receives in the sociotechnical transitions research field.7
To address this gap, the most recent agenda for sustainability transitions research (Köhler et al., 2019)
includes “the role of finance capital” (sic) as a future research direction, calling for particular attention
to the issues of economic crisis, long-term growth and financial regulation. However, the agenda
suggests that finance should be investigated as a topic within the theme “Businesses and industries
in sustainability transitions” – instead of as a theme of its own. This conflation between finance andbusiness overshadows important finance-related topics for transitions research, for instance, thedistinction between public and private finance and whether the former crowds in or out the latter(David et al., 2000), issues of financialization and the imperative of “maximizing shareholder value”(Lazonick, 2013; Lazonick and O’Sullivan, 2000), the emergence and diffusion of financial innovations,access to financial products and services, and the role of financial actors and their strategies in4

promoting or preventing sustainability transitions – just to mention a few. We argue that finance is
too important for sociotechnical transitions to sustainability to be relegated as a secondary topic
of research.
Research on finance in sustainability transitions did accelerate since the publication of the latest
sustainability transitions research agenda (a pre-print version came out in 2017). Of the 96 articles witha core focus on this theme, 62 were published since 2017. Among those published in the last decade,we briefly discuss those that we understand to deal (directly or indirectly) with the research question
this paper seeks to address: How can private finance be mobilized for a series of sociotechnicalsustainability transitions? This question later leads us to an investigation into what types of investing
strategies to promote transformative change or sustainability transitions already exist, whether they
are fit for the task from a sustainability transitions perspective, and what new forms of funding (itscharacteristics) are needed.
Half of the articles that we consider relevant to our research question discusses barriers to green
or low-carbon investment/finance (e.g. Bolton and Foxon, 2015; Hafner et al., 2020; Jacobsson andJacobsson, 2012; Polzin, 2017). Short-termism and financialization are identified as prominent barriers(Jacobsson and Jacobsson, 2012; Hafner et al., 2020), but other issues considered include technologicaland political uncertainty, compounded by complex system dynamics (Bolton and Foxon, 2015; Polzin,2017). While Jacobsson and Jacobsson (2012) and Polzin (2017) suggest that public finance is a potential
solution to closing the green finance gap, Bolton and Foxon (2015) and Hafner et al. (2020) suggest
looking at the emerging landscape of private sustainable investment (a suggestion we follow in thispaper).
The other half of the articles each have a more unique focus. For example, Urban and Wojcik (2019)analysed the practices of a large pension fund and concluded there was no evidence that suchinstitution was avoiding investments in unsustainable companies. They called for more research on
sustainability investing practices by private institutions, beyond the use of Environment, Sustainability
and Governance (ESG) metrics8. Another study that employed a quantitative approach is by Deleidi,
Mazzucato and Semieniuk (2020), who sought to estimate whether public investments in renewableenergy technologies crowd in or out private investments. Their estimates show that direct public
investment has a positive effect in mobilizing private investment, an effect that is higher than otherpolicy instruments such feed-in tariffs, taxes and renewable portfolio standards. They therefore
highlight the important complementarity of public and private finance in supporting the sustainability
transition.
Naidoo (2020) offers a review of finance in the sustainability transitions literature. Her conceptual
contribution, utilizing concepts from the sustainability transitions field, is to identify design features
for a financial system that promotes sustainability transitions. The author claims that the concept of‘directionality’ embedded in financing decisions is of particular importance and should substitute forfinancial ‘neutrality’ (i.e. finance that is indifferent to sustainability outcomes). She also calls for new
financial system features, such as a more explicit and politically-derived mandate for financial sector
performance (which would include sustainability goals) and structural reforms in the system thatbroaden performance targets and reduce short-term orientation. These are examples of demands
that a sociotechnical transition process poses on the financial system.
Geddes and Smith (2020) also mobilize concepts from the sustainability transitions field – the MultiLevel Perspective (MLP) (Geels, 2002) and transition dynamics derived from it – to study the actions
by State Investment Banks (SIBs, also known as National Development Banks) in the sustainability
investing landscape. Their starting argument is that the financial sector is a sociotechnical regime9of its own, operating with distinctive rules or heuristics that define its nature as a regime andthat is interacting with all other regimes. While their conclusions confirm previous MLP findings –5

e.g. that technological niches tend to conform to the financial regime, with occasional secondarytransformation of the regime by developments in niches – the fact that the authors consider financea separate sociotechnical regime and not as an element or dimension of other sociotechnical regimes
stands out from most conceptualizations in the field employing the MLP.
This is also the approach adopted by Loorbach et al. (2020), who consider the current financial system
as unsustainable: “a complex regime of institutions, organisations, regulations, practices and culturesthat has become focused on transforming ecological and human capital into financial capital as
efficiently as possible. It produces economic benefits and financial growth for relatively small groupsof people and institutions, while externalising significant costs and risks that are borne by society
and nature.” (p.11) Due to extreme quantification and specialization, the authors argue, the financial
regime became detached from the real economy and thus focused on “value extraction” rather than“value creation” (Mazzucato, 2018), with a general denial of responsibility or ethical considerations
concerning the negative impact of financial practices (such as tax evasion to maximize profits or theprovision of funding for the fossil, extractive and carbon-intensive industries).
Loorbach et al. (2020) recognize, however, that there are signs of destabilization in the dominant financial
regime, due to societal pressures and innovative niche practices: “Examples are mission-driven banks,
impact investing strategies, digital financial technologies, alternative accounting, local economies,
and so on.” (p. 14) Some sustainability investment strategies could contribute to incremental change
and adaptation of the current financial regime, like the integration of environmental and social
criteria in valuation model (“ESG integration”) or the issuance of “green bonds” (to fund sustainability
projects), while other would represent more radical departures of current practices, like fintechbased portfolios based on sustainable business models or purpose-driven financial institutions. To
effectively promote a transition to sustainability, Loorbach et al. (2020) propose that a new financial
regime should be based in new guiding rules: (1) from financial to integrated value, which combine financial,social and environmental returns, as a basis for investment decisions; (2) relationship finance, basedon a direct link and dialogue between financiers (be them bankers or asset managers/owners) andcompanies; and (3) capital allocation based on long term societal value.
This paper takes stock of the findings and suggestions for future research from these selected
contributions and the call for an examination of the emerging landscape of private sustainable
investment and the required characteristics for sustainability finance. We thus address one of thefour levels (or facets) of the financial system transition to sustainability proposed by Loorbach et al.
(2020): financing sustainability transitions, to ensure the transformation of other sociotechnical regimes(e.g. food, mobility, energy.10 To do so, we look away from the sustainability transitions field and survey
the sustainable investment literature to create a map of the field, based on which we derive four
propositions that indicate where we are on the map. We then reflect on these propositions drawing
on a sociotechnical sustainability transitions’ “theory of change”.
The next section briefly outlines our methodology and methods. In section 3, the academic andpractitioner literature on sustainability investment11 is examined qualitatively and historically tocharacterise four waves in sustainability investment theory and practice and to propose aninterpretation and analytical categorisation of its evolution. This is our first map of the field. In section
4, the academic literature is further examined with the aid of network analysis to create a semantic
network that aid in the identification of specific themes, creating a second map that complements
the analysis of section 3. Section 5 discusses the findings considering the sustainability transitions
literature, while section 6 provides concluding remarks and speculates about a transformative investment
framework.

62. Methodology
This paper seeks to contribute to the research of field sociotechnical transitions to sustainability, bymaking an initial bridge with the field of sustainable investing. Its focus is on how to mobilize private
finance for sustainability transitions, scoping the types of sustainability investing strategies, reflecting
on their appropriateness to the task (from a sociotechnical transition theory perspective) and onwhether new forms of investing are needed. To this end, we combine qualitative and quantitative
methods.
In section 3, we synthesize secondary accounts of the evolution of the sustainability investing
research field. The specific methodology for this section is based on the analysis of (academic andpractitioner) studies that provide a review of the field supplemented with desk research drawing ona snowballing technique (searching for subjects and developments mentioned in these accounts).
It also drew on the review of the CSR literature from of one of the authors’ PhD research project[reference omitted]. This narrative overview of the field is not meant as a systematic review but asa first approximation that allows us to identify different eras (or “waves”) of sustainability investing,their most relevant topics and prominent investing strategies. We use this first “map” to derive the
keywords we use to sample the literature and create a semantic network (section 4 – see below). The
papers for section 3 were selected due to their scope (reviews and historical accounts of the field)
and high citation count12.
The second method for mapping the literature on sustainability investing (presented in section 4)
is based on network analysis, and, more specifically, on the analysis of semantic networks between
academic articles. This method allows for the identification of key themes and issues that may
escape an initial investigation based on highly cited and review papers. It involved steps A-E below,
which we followed to produce a sample of the broader literature on sustainable investment andfinance. Again, we do not claim to be doing a systematic review of the sustainable finance research
field: we survey a representative sample of the sustainability investing literature that we will discussfrom a sociotechnical transition perspective. Our aim is to contribute to the field of socio-technicaltransitions to sustainability, and thus provide an initial “bridge” between the two fields.
A) Identification and refinement of search terms: this was done based on the analysis of highly
cited and review papers (coupled with the analysis of documents by practitioners), i.e. theresults from section 3. Establishing a search syntax is necessary for avoiding ‘false negatives’(exclusion of topic-relevant papers) and ‘false positives’ (inclusion of topic-irrelevant papers).
After many iterations, a search syntax was chosen. Given our research questions, we chose
to use as keywords the types of sustainability investing strategies found in the secondary
literature reviewed in section 3. We use a broad and simple syntax13 and did not use otherkeywords that could be associated with each type of strategies (e.g. microfinance for impact
investing; ESG indicators for ESG investing) because it could bias the results and therefore
the resulting network. The search was done in the Web of Science database, resulting in 369
documents (we make the full list available as supplementary material to this article). As anarrow search syntax was used, it is important to note that this represents only a niche sampleof the literature. Furthermore, neither the wildcard character ‘*’ (as in “ethical* invest” which
would have captured “ethically invest”) nor expressions with “investment” were used – when
the syntax was expanded this way, the search resulted in almost 2,000 documents. While thesedecisions may seem arbitrary, most of these 2000 papers were focused on corporate social
responsibility issues other than sustainability investing, which is the core focus of this paper.
B) Exporting results: the full record of the 369 results were exported to Gephi, an open-source
network analysis and visualization software package.
C) Screening results: after importing records to Gephi, the titles and abstracts of those 369
documents were screened to identify irrelevant papers or papers in languages other thanEnglish14 (only one paper was removed, because it was not related to the subject of sustainability
investing).

7D) Building the semantic network: with the aid of a Gephi plug-in developed by the Brazilian Centreof Strategic Studies and Management (CGEE), a semantic (bibliographic) network was created. The
network links two papers if they display semantic proximity, which is calculated based on amatrix (vector-space representation) of word co-occurrences in the title and abstracts of the
documents15. Similarity was inferred by using the standard technique of calculating the cosine
similarity of the vector-space representation of two document abstracts/titles (Rahutomo etal., 2012). The plugin and package calculates this as well as other indicators of this bibliographic
network, such as the degree centrality of each node (how many other nodes a given node islinked to) and modularity class, designed to measure the strength of division of a network intomodules (a ‘class’ or ‘cluster’ cosine similar documents). The bibliographic network that was
created resulted in 354 nodes (the plugin discarded 15 data points due to lack of information),
685 edges and 93 modular classes. From those classes, 27 had at least 2 nodes (the other66 classes were made up of only one node, i.e. each of these papers did not present enoughsimilarity with others, given the conservative similarity cut-off parameter used).
E) Analysing the bibliographic network: the analysis sought to identify what connects a paper
to another to form a cluster. This was done through an examination, for each cluster, of:(a) authors, organizations and countries, to access whether a class is characterized by thedominance of single author, organization or country; (b) Web of Science (WoS) categories; (c)first year when a document in the cluster was published and year when more papers in thecluster were published; (d) wordcloud of keywords; (e) identification of the two papers with thehighest degree centrality; and (f) identification of the two most cited papers in the class. The
examination of (a) is made to avoid spurious clustering, while the triangulation of (c), (d), (e)and (f) is what allowed for the identification of the theme(s) that characterizes each clusterin the network.16 Annex I provides information about each modular class in terms of these
indicators, and should be used to help with the interpretation of the semantic network. The
complete list of articles (supplementary material) indicate the cluster to which each article
was assigned (in step B).
We use these methods and procedures (analysis of the number of academic articles over time andsemantic network analysis) to verify whether our initial map based on secondary accounts (section3) could be confirmed by the analysis of a representative sample of articles looking at sustainability
investing strategy. The results from both analyses led to the formulation of analytical propositions.
The identification and analysis of the different types of sustainability investing strategies resulted in
the proposal of a typology of such strategies, which informed our reflection on the appropriateness ofsuch strategies for sociotechnical sustainability transitions. In section 5, we discuss these propositions
and, in particular, the types of sustainability investing strategies in relation to sociotechnical transition
theory.

3. The coevolution of the Business & Society field and the literature on
sustainability investment practices
3.1. Chronology
The terms used to refer to investment practices that integrate a consideration of moral values orenvironmental, social and governance (ESG) issues has varied over time. Eccles and Viviers (2011)
identifies the most common terms17 as:
•
•
•
•
•

Ethical Investment;
Social Investment;
Socially Responsible Investment;
Responsible Investment; andSustainability/Sustainable Investment.

The number of terms referring to investment practices considering issues beyond financial returnis vast, raising questions such as: are they all the same concept? And do they all deal with or refer8to the same kind of investment practices? The short answer to both questions is: ‘no’. A review ofthe evolution of the literature explains why this is so. The literature looking at sustainability investing
practices originates in the Business & Society field18 of the 1950s, and is related to how both theory
and practice evolved. Figure 2 depicts the result of our synthesis: a co-evolutionary process throughwhich key events influenced the field and the usage of key terms in peer-reviewed articles.
Figure 2: Sustainability investing, the evolution of the field (number of articles per year, 3-year moving average and key events)

1980s - 1990s

25

Pax World Fund(US), ﬁrst socially
responsible
mutual fund

20

2000s

Socially Responsible
Investing
Sullivan Principles andinvestment boycott inSouth Africa

Domini 400 Social Index,
longest running socially
responsible index

Valdez (Ceres) Principles
on environmental
responsibility

Sustainable andImpact Investing

UN Principles for
Responsible
Investment (UNPRI)

UN
SDGs

Dow Jones
Sustainability
Index

EPA’s Toxics
ReleaseProgram0“LimitstoGrowth”

50

40

World
Bank’sGreen Bond

15

5

ClimateAction100+

Stern
ReviewFirst Afﬁrmative
Financial Network of
SRI ﬁnancial advisors

10

2010s

Responsible
Investing

EIB’sClimateBond

UK Corporate
Governance
Code
EquatorPrinciples

PorterHypothesis

30

GIIN

1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019

Yearly number of articles citing each expression

EthicalInvestingtotal of unique articles (right-hand axis)

Ethical Investing

Socially Responsible InvestingResponsible Investing

Sustainable or Sustainability Investing

Green or ESG Investing

20

10

0

Total number of articles citing at least one expression

1950s - 1970s

Impact Investing
Note: The y-axis for the series for each of the six terms is on the left; the y-axis for the total number of articles citing at least
one term is on the right. The light blue shaded area representing the yearly total of unique articles is less than the sum of thesix data points in a given year, because a single article may use more than one term.
Source: Author’s construction based on Deutsche Bank Group (2012); Eccles and Viviers (2011); Touchstone Investments (2020);
UNPRI (2020); Vezér et al. (2017); [reference omitted].

This figure was constructed through the same search strategy (syntax) that we use for the semantic
network, but we also searched for each sustainable investing strategy individually (as indicated in
the labels of the figure – see also footnote 14) to check whether the focus of academic researchon different types of strategy changed over time. One limitation of our restrictive approach (seethe methodology section) is that it only captured articles published from 1970s onwards. However,
the history of sustainable investing (broadly speaking) is thousands of years old, if one considers
the alignment of financial practices with the religious values of Judaism, Methodism and Quakerism(Busch et al. 2021).
Two further observations about this figure are warranted: first, it shows the events that we discuss inthe overview (narrative account) due to its apparent influence on the evolution of the field; second,
decadal headings are based not only on the usage of terms in journals, but, more importantly, on
our analytical overview of the field. While the figure may give the impression that the four periods

9are well-structured along specific decades, in fact, the periods overlap. Our narrative overview will
particularly emphasize how certain developments had lasting effects, strategies remained in use,and debates continue.
The publication of Social Responsibilities of the Businessman by Bowen (1953) grounded the conceptof ‘social responsibilities’ on moral philosophy and ethics (Carroll, 1999). The focus on the ethicalbehaviour of the individual (i.e. the ‘businessman’ or the investor) gave rise to the philanthropic
investment movement and to the first term used to refer to sustainable investment practices: ethicalinvesting. In the first wave of sustainability investing, the focus was on how to avoid investments infirms or activities that are deemed unethical – investors therefore held a deontological ethical position19
towards their investments (Chatterji et al., 2009; Eccles and Viviers, 2011).
In the 1960s, the level of analysis began to move upwards, from the individual to the firm, with Davis(1960), who drew on the concept of power from political sciences to reformulate the moralistic
rationale for social responsibilities into an ‘Iron Law of Responsibility’: business’ social responsibilities
should be proportional to its social power, otherwise it risked losing this very same power as well
as social legitimacy (Davis, 1960, 1973)20. This was the inception of the concept of Corporate Social
Responsibility (CSR), which is intimately associated with the concept of sustainable investing (Busch etal., 2016).
Normative views of social responsibilities of businesses were challenged by some economists,
amongst whom the most famous was Milton Friedman (Kusunoki, 2016). In his book Capitalism andFreedom, Friedman (1962) argued that the ‘social responsibility of business’ was to ‘increase its profits’(as he later phrased it in a 1970 article) and contended that responsibilities other than that would
impose a costly burden on shareholders. Therefore, according to Friedman, corporations had thestrict economic responsibility to profit and pay dividends to its shareholders – to maximize shareholder
value (MSV).21 The flipside of this critique was that asset and portfolio managers who engaged in
ethical investment practices, by selecting companies with higher levels of social performance, would
be breaching their fiduciary duty, as those companies were deploying capital to address issues otherthan maximizing shareholder value.
Given this intellectual controversy (whether a firm have a social or environmental responsibility or only
a profit maximization responsibility), in the 1970s scholars offered a more instrumental and pragmatic
approach to corporate social responsibility (Carroll, 1999; Lee, 2008). Three main strands of researchdeveloped in that decade: one evolved into what is known as the ‘Business Case for Corporate
Social Responsibility’ (that CSR contributed positively to a firm’s financial performance), the second
developed the idea of ‘Corporate Social Responsiveness’ (that firms had an obligation to respond totheir stakeholders and not only to shareholders), and the third refocused the debate on the notion of‘Corporate Public Responsibility’ (that firms were responsible for solving not all problems but thosethey have cause or related to their interests). It is the first strand that is more relevant for theliterature on ESG-related investment practices.
Several authors attempted to demonstrate a “business case” for Corporate Social Responsibility byshowing an empirical correlation between CSR and Corporate Financial Performance (CFP). If suchcorrelation could be established, i.e. if the market rewarded socially responsible firms (e.g. throughaccess to lower cost of capital or increased equity value), then engaging in socially responsible
activities would be in the shareholders’ interest. This research represented an instrumental approach
to CSR; being responsible would be a means to the end of maximizing profits. Years later, the formulationof what came to be known as the “Porter Hypothesis” (Porter, 1991; Porter and Van der Linde, 1995a,b) – that environmental regulations do not hinder but often enhance competitive advantage – was amilestone in this stream of research, signalling the possibility of a win-win-win – or triple bottom-line(Busch et al., 2016) – situation (whereby shareholders, society and the environment ‘profit’). While early10

studies “tried to find the relationship between CSR and CFP without explaining the relationship” (Lee,2008, p. 56), the Porter Hypothesis provided a causal reasoning for the link, and this line of research
evolved theoretically and empirically in the following decades.
While theoretically researchers tried to demonstrate the rationales behind the ‘business case’ (Carroll
and Shabana, 2010), empirically, proving that CSR and CFP were linked remained elusive in the beginning,particularly because of difficulties in measuring and comparing socio-environmental performance (Wood,2010). Indeed, measuring corporate environmental, social and governance performance became amain focus of the field in the 1980s, with a continuing stream of contributions (to present days) andpractical developments including the emergence of ESG-performance disclosure standards, ESGrating agencies and ESG-data providers (Busch et al., 2021).
From the sustainability investing practice perspective, demonstrating the correlation between
superior corporate ESG-performance and superior corporate financial performance was of paramountimportance. If this link could be established, then ethical investing would be justified from a fiduciary
duty22 perspective. Ethical investing had received an impetus in 1971 with the launch of the Pax World
Fund in the US, the first and longest running ethical mutual fund, which pledge not to invest in weapons
production, in part a response to the anti-Vietnam War movement (Deutsche Bank Group, 2012).
Another impetus also came in 1977 in the form of the Sullivan Principles (named after Rev. Leon Sullivan,
at the time a member of the General Motors board). The Sullivan Principles were standards that weremeant to challenge key features of apartheid for companies operating in South Africa. The adoptionof the Principles meant that the complying company would transgress some rules of apartheid, e.g.
‘non-segregation of the races in all eating, comfort, and work facilities’ – creating a type of corporate‘civil disobedience’. The Sullivan Principles were more a governance reform than a divestment strategy,
although the difficulty of complying no doubt became an impetus to divestment.
In those early decades, the practice of ethical investing was indeed mainly based on an exclusionary
approach, in that certain firms or sectors were screened out of portfolios based on religious or moral
grounds. And that was a problem, because a direct link between the investment practice of negative
screening (also known as values-driven investment screening) by ethical mutual funds, on the one hand,and superior risk-adjusted performance of those funds, on the other, could not be established. Initial
results were mixed or neutral at best, depending on the level of negative screens used for portfolio
selection (Barnett and Salomon, 2006; Geczy et al., 2005).
Thus, like the Business & Society field, in the late-1970s the literature on sustainable investment
practices moved towards a more pragmatic, instrumental and utilitarian ethical approach (Eccles
and Viviers, 2011), whereby “financial arguments win [have precedence] over environmental or social
considerations” (Busch et al., 2021: 33). To mark the move away from its religious and moral foundations,a new term was coined: socially responsible investing. The key distinguishing feature of this new investment
practice was the “combination of social and environmental goals with financial objectives of achievinga return on invested capital approaching that of the market” (Sparkes, 2001). In practice, that meantthat a certain level of trade-off between corporate ESG- and financial-performance when making
investment decisions was expected, particularly because portfolio selection was still centred on
negative screening strategies (Deutsche Bank Group, 2012). It also meant that the ethical stance ofinvestors moved from a deontological to a more utilitarian position (Eccles and Viviers, 2011).
Developments from the late 1980s and 1990s resulted in a new reframing of sustainable investing
practices: (a) the recognition of the impact of certain environmental disasters on firm value (e.g.
Exxon Valdez oil spill); (b) the surge in environmental disclosures (both by official sources, such as
the US Environmental Protection Agency (EPA), and firms); and (c) the emergence of new practices –namely, shareholder activism and positive (or norm-based) screening.

11

Those developments meant first and foremost that ESG-related issues were assumed to be ofmaterial importance to corporate – and investment – financial performance. Several studies finallymanaged to demonstrate this materiality, using standardized environmental disclosure information,
which boomed at the time (a key development was the US EPA’s Toxics Release Program, which started
to disclose corporate pollution information in 1986). A meta-analysis of those studies by theDeutsche Bank Group (2012) showed “overwhelming academic evidence” that firms with superior ESGperformance faced lower cost of capital in terms of debt and equity as well as demonstrating bothaccounting-based and superior market performances. The business case for socially responsible
investment seemed finally demonstrated. Yet, to this day there are conflicting evidence. While asystematic review article – employing different methodologies including meta-analysis – of morethan 2000 studies examining the relationship between ESG- and financial performance found that90% show at least a non-negative relation, with the majority finding a positive relation, when theauthors analysed only a subset of those studies that looked at the performance of ESG portfolios,
mutual funds and indices, the non-negative result diminished considerably (Friede et al., 2015). Similarly,
Bruno et al. (2021) examined the performance of different ESG-investment strategies (accounting for
exposure level, risks, and market momentum), and concluded that ESG considerations do not lead tosuperior performance (75% of a supposed outperformance would be due to traditional “quality” orgrowth factors). Therefore, the debate continues.
By the 1990s, however, the investing practices had shifted the focus from moral values to financial value.
Instead of negative screening investments, the new practice tried to positively screen investments,
by including in the possible investment universe only those assets that displayed superior ESGperformance. Such practice comprised strategies like norm-based or index-screening, in which asset
managers invest in companies that adhere to certain norms or a part of a sustainability-/ESG- market
index. In 1990, Domini 400 Social Index was launched, since then becoming the longest running socially
responsible stock index; in 1999, the most famous sustainability index was launched: the Dow Jones
Sustainability Index. Eccles and Viviers (2011) use the term responsible investment (without ‘socially’) to referto this third wave of sustainability investing, which was popularized after the launch in 2006 of the
UN’s initiative Principles for Responsible Investment (UNPRI) and its widespread adoption.
The Principles for Responsible Investment were the result of a UN working group “to study the financial
materiality of Environmental, Social and Governance (ESG) issues to securities valuation — a key
finding being ‘agreement [among analysts] that environmental, social and corporate governanceissues affect long-term shareholder value... [and] in some cases those effects may be profound”(Deutsche Bank Group, 2012, p. 21). The UNPRI sought to formalize certain ESG-related standards,
practices and goals.23
This was no minor turn in the evolution of the field, in that the ethical stance underlying thesustainability investment practices moved from a moral-based (deontological) ethics (based on acode of values) through a utilitarian/instrumentalist ethics (focused on minimizing ESG-risks) to anegoist ethics (focused on achieving superior return on investments) (Eccles and Viviers, 2011; seealso the classification of investors that consider ESG- factors by Chatterji et al., 2009). This is why
these authors define responsible investing as “investment practices that integrate a considerationof ESG issues with the primary purpose of delivering higher-risk-adjusted financial returns” (Eccles
and Viviers, 2011). The underlying assumption of those practices is that ESG-issues are of material
importance and it is possible to identify superior investment opportunities – those that offer morevalue to shareholders/investors – by analysing how the company scores in relation to ESG-factors(strategies used included “ESG-integration”, the inclusion of ESG-factors in valuation models or bestin-class screening, to select a best-performing asset relatively to peers).
The scandals of Enron and Worldcom in the early 2000s (and the subsequent passage of the
Sarbanes-Oxley Public Company Accounting Reform and Investor Protection Act in 2002) reinforced the trend of12

responsible investment practices, putting a new emphasis on governance issues on top of environmental
and social issues (the publication in 1998 of the UK Governance Code was part of this trend). Institutional
investors and asset managers (and large asset owners known as Universal Owners) particularly pushed
for this emphasis on governance. As Busch et al. (2021) observe, the governance dimension is quite
different from the environmental and social ones and is associated with active types of “sustainable”
investment strategies whereby shareholders pressure corporate executives and board directors forchange (through active engagement and proxy voting). These responsible investors “typically exhibit
active ownership, which entails shareholder engagement with the corporations they invest in, rather
than just negative screening techniques” (Deutsche Bank Group, 2012, p. 21).
In the most recent years, a new term consolidated amongst practitioners to refer to investment
practices that integrate ESG considerations into portfolio selection and management processes toachieve sustained competitive advantage and outperformance: sustainable investing (Deutsche Bank
Group, 2012; Touchstone Investments, 2020; Busch et al. 2016). This reframing seems to have beenstimulated by important sustainability- or climate-related developments, namely, the launch of theEquator Principles in 2003 by the International Finance Corporation (World Bank Group), an environmental
and social risk management framework for financial institutions, and the Stern Review (Stern, 2006),
which offered an estimate of the economic costs of climate change. These assessments were
followed by financial instrument innovations to promote sustainability or mitigate climate-change,such as the European Investment Bank’s Climate Bonds, in 2007, or the World Bank’s Green Bonds, in2008. It also gave rise to the strategy of thematic and cause-based investing.
In this forth wave of sustainability investing, the investment focus become less on avoiding unethicalinvestments (as in the wave of ethical investing), minimizing ESG-risks (second wave) or capturing
superior financial value associated with ESG-factors (third wave) and more on supporting or creating
positive impacts to solve societal problems.24 Impact investors therefore seem to return to a
deontological ethical position coupled but now acting proactively and, sometimes, altruistically, eventhough utilitarian motives (e.g. avoiding ESG risks that could affect financial performance) also seemto persist particularly amongst asset managers who are bound to their fiduciary duties (cf. Eccles
and Viviers, 2011 and Chatterji et al., 2009).
This forth wave of sustainability investing comes with another round of instrument or strategy
innovations, with a new focus: the practice of impact investing based the investment decision from ‘ESGinputs’ to ‘ESG-outputs’ (actual impacts). The Global Impact Investing Network (GIIN), founded in 2009,
defines impact investing as “investments made with the intention to generate positive, measurablesocial and environmental impact alongside a financial return” (GIIN, 2020). To be sure, some forms ofimpact investing can be traced back to the previous decades (Benjamin et al., 2004; Busch et al., 2021),
such or community investing, for disadvantaged localities (which received an impetus in the US with
the Community Reinvestment Act of 1977) and microfinance (or microcredit), which seeks to provide
access to finance and financial services to individuals (or small firms) who are adversely selected byother intermediaries.
Both sustainable investing and impact investing are terms increasingly adopted by academics (see Figure 2)
and practitioners, indicating a new turn in the evolution of the field, towards more proactive, impactoriented investment strategies. The announcement of the Sustainable Development Goals (SDGs) by theUnited Nations in 2015 can be seen as the part of this process – indeed, the SDGs are now often
referenced in investors’ statements concerning impact investing.
Based on the preceding analysis, we can advance the following proposition:

13

(1)
The literature on sustainable investing coevolved with corporate social responsibility theory and withthe practice and events of the field, revealing four distinctive waves of “sustainability investing”.
We deem important to discuss this proposition in light of the periodization offered by Busch et al. (2021).
In our understanding, the identification of four waves is compatible with their view on the different“Sustainable Finance” eras: the first wave would correspond to what they call Sustainable Finance1.0; the second and third waves would cover Sustinable Finance 2.0; and the fourth wave, Sustinable
Finance 3.0. As we will argue, the results reported in section 4 also lead us to speculate about the
emergence of a fifth wave of sustainability investing. Our analytical overview of the evolution of the
field provide details to different aspects of these waves/eras. Table 1 provides a summary of ouranalytical chronology: the key terms used to refer to sustainability investment practices, indicating
the period in which their use was more prominent; their ethical foundation; associated themes; andmain investing (portfolio selection) strategies.
Table 1: Schematic summary of the sustainability investing literature and practice

Source: Author’s construction.

Because of our interest on the types of investment strategies to promote sustainability, we here
offer a brief definition of the most important categories (bottom row in Table 1). In line with Krosinsky(2017), who discusses the “seven tribes of sustainable investing”25, in our overview we encountered
seven sustainable investing strategies:a) Negative screening and exclusionary approaches: a passive, binary choice, in that a company,
sector/class of assets, or assets from a given country, is out of the investment universe or
portfolio, depending on e.g. moral values or on pre-defined criteria.26b) Norm-based screening: this strategy is related to external criteria as the standard for inclusionof an asset in the investment universe (e.g. being part of a sustainability index or adhering tocertain norms and certifications). Other terms used in association to this strategy is passive(sustainability, social or ESG) index investing and ESG-indicator based (factor investing).

14c) Positive screening or best-in-class screening/ relative screening: a pure positive screening
strategy that is a passive, binary choice, in that a company or sector is in an investment
universe or portfolio due to it being socially or environmentally responsible. Best-in-class or relative
screening attributes weights to certain criteria in order to rank investment opportunities indifferent asset ‘classes’ or sectors.
d) Full integration of ESG factors into individual stock valuation: a long term, value investing
strategy, in which ESG factors are computed into the valuation model (fundamental analysis),
together with traditional financial and economic factors. The difficulty in this strategy
is to obtain standardized high-quality data to allow for comparison between investment
opportunitiese) Thematic investing (sustainability themed, cause-based): investments in companies, projects
or assets related to a theme, usually linked to the development of sustainability. Include“thematic funds” that seek to address a given societal (ESG) challenge. It is a strategy that
requires a screening procedure and certain investment products such as social or green bonds
can be associated with this type of strategy.
f) Active ownership and engagement: in this active strategy, the investor or fund manager try
to directly influence the management, strategy and business model of the company. Active
ownership “deviates completely from the [other strategies] in that it is not about making
investment decisions, but rather about how ownership is conducted. […] They do so byengaging in dialogue, filing resolutions, and using their voting rights at Annual General Meetings[AGM].” (Eccles and Viviers, 2011, p. 394) Other practices/terms associated with this strategy
are: shareholder activism (when an activist buys a company’s share with the sole objective togain access to its AGM and e.g. stage a protest); engagement and voting; and proxy voting(whereby a fiduciary will cast a vote for other shareholders in shareholder meetings) andshareholder resolutions (Eurosif, 2016). Note that Eurosif (2012) does not consider engagement
and voting on governance matters only as a type of sustainable investing strategy.
g) Impact investing: the focus of this strategy is to invest in assets that provide solutions tosocietal challenges, i.e. cause a ‘positive impact’. While the focus may be on companies, it isincreasingly on specific projects, and may target several asset classes along the investment
chain, such as cash equivalents, fixed income, venture capital and private equity. This strategy
also requires high quality standardized data for impact measurement to access impact.27 It
differs from philanthropic support to projects, in that the investor is also expecting a riskadjusted market return on capital, which may vary depending on the asset class. Other terms(or practices) associated with impact investing include microfinance/ microcredit, community
investing and social business/entrepreneurship funds. Busch et al. (2021) propose two types ofimpact investment strategies: impact-aligned investments, which is backward-oriented as it
considers already realized ESG-outputs; and impact-generating, which is forwards-oriented
by considering future ESG-outputs.

3.2. Recent change in the sustainability investing landscapeSince 2012, every two years the Global Sustainable Investment Alliance28 (GSIA) publishes a Global
Sustainable Investment Review – the 2018 edition being the most recent one (Global Sustainable Investment
Alliance, 2019). This report is based on results from the GSIA studies of regional sustainable investment
markets (Europe, the United States, Japan, Canada, and Australia and New Zealand). Table 2 shows
the growth of sustainable investing assets by region. While the largest market in 2018 is Europe (USD
14.1 trillion), followed by the USA (USD 12.0 trillion), the fastest growing markets are Australia/New
Zealand (USD 734 billion) and Japan (USD 1.7 trillion).29 Also, worth noting, the proportion of sustainable
investment assets relative to total managed assets grew in every region from 2014-2018 except for
Europe. This fact highlights the increasing adoption of ESG-related investment strategies by investors
worldwide.

15

Table 2: Growth of sustainable investing assets by region in local currency 2014–2018

Note: Asset values are expressed in billions. All 2018 assets are as of 31 Dec 2017, except for Japan, whose assets are as of 31
Mar 2018.
Source: Global Sustainable Investment Alliance (2019, p. 8)

GSIA adopts a seven-fold classification of strategies for sustainable investing (similar to Eurosif’s(2012) and Krosinsky’s (2017)). Figure 3 shows how the assets managed under each of the strategies
grew between 2016 and 2018.
The largest sustainable investment strategy globally continues to be negative or exclusionary
screening […], with a combined $19.8 trillion in assets under management. This is followed by ESG
integration, which has grown by 69 percent over the past two years, to $17.5 trillion in assets. Negative
screening is the largest strategy in Europe, while ESG integration commands the majority of assets
in the United States, Canada, Australia and New Zealand. Meanwhile, corporate engagement andshareholder action constitute the predominant strategy in Japan. (Global Sustainable Investment
Alliance, 2019, p. 10)
From a very low level in 2016, the most rapidly growing strategy has been thematic investment (CAGR of92%), followed by positive and best-in-class screening (CAGR of 50%). New investment strategies suchas impact investing grew 34%, and so did ESG integration (30%) and Active ownership and engagement (8%).
Interestingly, the oldest type of investing style, negative screening, continued to grow at a CAGR of
15% between 2016 and 2018. The only strategy that saw a decline in the amount of assets undermanagement was norm-based (index) screening (CAGR of -13%).

$0.00

Impactinvesting

Thematic
investing$10,353.20$8,385.17$6,195.40$1,841.87$818.01$1,017.66$276.16$444.26$5,000.00$248.47$10,000.00$4,679.44$15,000.00$9,834.59$20,000.00

Positive and Norm-based
ActiveESG
best-in-class screening
ownership integration
screeningandengagement
2016

2018

Source: Based on data from the Global Sustainable Investment Alliance (2019, p. 10)

16$15,063.57$17,543.81

USD billion$25,000.00$19,770.96

Figure 3: Global growth of sustainable investing strategies 2016–2018

Negativescreening

Long-term (prior to the 1990s) datasets on the size of different sustainability investing strategies
globally over time are rare (or, to our best of knowledge, non-existent). The US SIF Foundation (2020)
estimates the size of sustainable investing in the US market since 1995, separating strategies into
two categories: ESG Incorporation (not necessarily ESG Integration but simply applying any ESG-related
criteria for investment decision and portfolio selection) and Shareholder Advocacy (filling shareholders
resolutions on ESG issues at publicly traded companies). Its data underscores the fast pace ofincrease in sustainable investments in the past decades: in 1995, it estimated assets of $639 billion
which increased 25-fold (14% CAGR) up to 2020 when it reached more than $17 trillion30, and “the most
rapid growth has occurred since 2012” (US SIF Foundation, 2020: 1). In Europe, Eurosif has estimatedthe size of each of the seven sustainable investing strategies since its 2012 report (Eurosif, 2012).
Between 2011 and 2018, all strategies presented a positive 6-year CAGR, with “Impact Investing”
displaying the highest rate (52.2%, representing however the smallest strategy in assets of €108.6
billion in 2017), followed by “ESG Integration (22%31, €4.2 trillion) “Sustainability Themed” (20.7%, €148.8
billion), “Engagement and Voting” (18.4%, €4.6 trillion), “Exclusions” (Negative Screening (17.6%, thelargest strategy with assets of €9.5 trillion), Best-in-Class (12.9%, €585.7 billion), Norm-Based (6.7%,€3.1 trillion).
Despite methodological difficulties, different sources converge in the depiction of similar trends in thepast two decades. While newer strategies such as thematic investing and impact investing show large
growth rates (which would be expected if the proposition that they pertain to a fourth sustainability
investment wave is right), older strategies are still the most adopted by investors and keep growing(which is somehow surprising). Negative screening, with a smaller growth rate (and decreasing in Europe
between 2015 and 2017 according to Eurosif, 2018), is still the most popular “sustainability” investing
strategy, being associated with the first and oldest wave of “ethical investing”. ESG Integration is thesecond largest globally and in Europe, and still displays a significant growth rate. These facts seem to
imply that successive waves propel previous ones upwards, in a ‘tidal effect’. This leads to our second
proposition:(2)
Each wave of sustainability investing triggers new investment strategies,
while propelling preceding ones upwards (‘tidal effect’).
While this proposition, as a hypothesis, may be hard to verify given the lack of detailed data on asset
size of the different strategies before the 2010s, the idea of a “tidal effect” that we propose has
more to do with size and growth rates than with novelty (many if not all strategies pre-dates thepast two decades). The proposition also reflects the fact that the successive strategies seem tocompete with the older strategies, which continue to attract resources32, so that newer strategies
receive a relatively small share of total sustainability investments. Yet, as newer sustainability investing
strategies have a higher cumulative growth rate, should they be able to sustain this growth rate theywould eventually pass the older strategies. On the other hand, sustaining these growth rates may not
be feasible unless negative screening and ESG integration were to begin to decline (if we assume a “zerosum” game) or more funding will have to be directed to sustainability investing.
An important question is: what might cause a redirection of resources from ‘older’ to ‘newer’ strategies
or the attraction of more funding to sustainability investing? We suggest that a better understandingof transition processes may raise the value of the impact-oriented strategies, including shareholder
engagement, in terms of market return or perceived impact on systemic change or both (and thus
attract new money). We elaborate on this suggestion in section 5.

17

3.3. Towards a typology of sustainable investing strategies
To better position each investment strategy relatively to one another, and (in section 5) discuss
where the insights from transition theory are likely to be applicable, we propose a simple typology(our third proposition) of sustainable investing strategies (Figure 4):(3)
Sustainable investing strategies can be typified along the following categories:(a) Approach (top down/ investment thesis or bottom up/ valuation);(b) Orientation (mitigating negative externalities or inducing positive externalities);and (c) Return on Investment (from zero to risk-adjusted)
Figure 4: A new typology of sustainable investing strategies

Source: Author’s construction.

Although the figure may suggest binomial categories, they are better understood as a continuum,
particularly the “return on investment”. This category indicates the that investors often accept toforego financial returns in favour of ESG-results, be them mitigating negative externalities or inducing
positive externalities. The “Orientation” category reflects the fact that certain strategies seek toavoid investments in assets (companies, projects) that cause societal problems, thus mitigating
negative externalities, while others try to support those that promote positive change, i.e. “positive
externalities” (loosely speaking). Finally, the “Approach” category represents the fact that certain
strategies are based on principles (values, beliefs) that define an investment thesis based on which a
portfolio is selected (“Top down” strategies), while others are based on knowledge about an asset’s
underlying ESG “fundamentals”, depending on the quality of associated metrics for its effectiveness.
This framework creates an ideal typical space where “pure types” are represented. In practice,investors may adopt multiple strategies or hybrid strategies, so that e.g. shareholder activism orengagement could be based on values and beliefs, but they would still need to be anchored in facts(e.g. evidence of a company’s wrongdoings) to reach results.
Our typology seems consistent with the one proposed by Busch et al. (2021), which has four categories:
ESG-screened investments, ESG-managed investments, Impact-aligned investments, and Impact-generating
investments. In their typology, these categories would differ in terms of objectives (mitigation of
ethical concerns; identification of ESG-risks and opportunities; addressing societal challenges; andcontributing to societal transformations, respectively), materiality (which is not addressed or measured,in the first two types, respectively; or is addressed through benchmark analysis or measurement of18

generated impact, in the latter types, respectively), general approach (mainly exclusionary strategies
in the case of ESG-screened; a combination of exclusion and other nonengagement strategies in
ESG-managed; and a combination of screens; other strategies and engagement strategies in theimpact types); and documentation to increase transparency (decision-making and capital allocation isincreasingly documented and verified, while impacts measured as we move from the ESG-screened/managed to Impact-aligned/generating types). If we disregard the general approach category, then we
could position ESG-screened investments in the top-left quadrant of our typology, ESG-managed in thebottom-left, Impact-generating in the bottom-right, and Impact-related in the top-right.
The added value of our framework is, first, its systematization of the main sustainable investment
strategies (Eurosif, 2012; Krosinsky, 2017) along simple categories. Second and most important, theframework is useful for our discussion of strategies in relation to sociotechnical transitions theory.
Without the horizontal category, non-sustainable (traditional) investing strategies could be positioned
such a framework. Therefore, the horizontal axis is key for this discussion, but we will also discuss
implications from the two other categories. Indeed, Busch et al. (2021) conclude their commentary on
the need to provide an explicit causal link between what they call impact investments and the solutions
to socio-environmental challenges, to determine and measure the positive impacts on the real world.
In section 5, we address this suggestion by discussing how sociotechnical transitions theory canhelp in the formulation of a framework (or Theory of Change) that allow for the explicit identificationof the causal links and, potentially, of the elusive aspects of intentionality and additionality behind
impact investments.
The intersection of the three categories in our framework logically results not in the traditional sevenstrategy typology proposed by Eurosif (2012) and others, but eight ideal-typical investment strategies.
We argue that the one missing is not considered nowadays to be a “sustainability investing” practice
but was present in the origins of the field: philanthropy. It is not an “investment” strategy as such, forit does not provide a financial return to the investor (unless sometimes in the form of tax-breaks) but
it is associated with the early notion of “ethical investments” and currently with “impact investment”.
Indeed, it sits on the opposite end of traditional forms of investment that seeks financial returns only;
philanthropy seeks positive impact and thus “focus[es] on one or a cluster of issue areas where social
or environmental need requires 100% financial trade-off” (Eurosif, 2012: p. 21, citing the Bridges Ventures’framework of sustainable investment).
In 2018, there were more than 260 thousand philanthropic foundations in 39 countries (60% of which
in Europe and 35% in North America), with assets exceeding USD 1.5 trillion (60% in the United States
only and 37% in Europe) (Johnson, 2018). In 2018, the asset value of philanthropic funds was 50% larger
than that of impact investing and thematic investing (Figure 3), although this gap may have declined
since. An area for further examination is the practice of philanthropy, since philanthropic funds areengaged in a widening array of investment strategies to meet their “impact” objectives, including
new tools or approaches (such as equity or ‘venture philanthropy’ investments, social investments
and income contingent loans/grants) and are developing their own tools for monitoring and evaluating
impact (Johnson, 2018; Kingston and Bolton, 2004). “Venture philanthropy” (VP) is a type of support
to businesses, i.e. whose business models has societal purpose and which seek both profits andpositive impact, whereby VP organization provides financial (through grants, subsidized loans orequity investments) and nonfinancial (e.g. mentoring and capacity building), support (Gianoncelli etal., 2019). Venture philanthropy tends towards the impact investment strategy when VP institutions
use repayable forms of capital (as opposed to grants), which is increasingly the case the more “forprofit” is the supported organization (idem).
Despite its recent consolidation as a strategy (associated or not to philanthropy), impact investing
still appears at the periphery of the sustainable investing literature, as we will show in the next section.
While financing transformative change could jump on the bandwagon of impact investing, achieving
greater scale would likely require additional criteria to effectively use other strategies in Figure 4.

19

4. A semantic map of the literature on sustainable investing
Figure 5 shows the bibliographic (semantic) network that results from the search strategy presented
in section 2. The network was created with the aid of a specific plugin for building semantic networks
in the network analysis software Gephi: its representation was exported as a vector image, so thatit could be rearranged with the aid of an image editing software. Thus, some observations on the
representation are warranted: first, the arrangement of the clusters in the bidimensional space does
not carry any objective meaning, in the sense that they were simply rearranged for the sake of clarity;and second, neither the length of the linkages (edges) carry any meaning, but their colour shades do(the darker the edge shade, the more similar the nodes); and, third, the colour of the nodes indicate
the clusters (network’s modularity class based on semantic proximity between articles). Fourth,instead of using the indicator degree of centrality to determine the size of each node, “total times
cited in WoS” was used. That is, the size of each node represents how many times the document wascited according to the Web of Science database. While this indicator is unrelated to and does notdefine this type of similarity network (and intriguingly, most highly cited papers have only a modest
number of links to other papers in the sample), it allows for visually identifying which clusters containthe most cited papers. Annex I is provided as a way to describe each cluster, and the reader isreferred to it to help with the interpretation of the clusters.
Figure 5: A bibliographic network of the sustainable investing literature

NGOs

Social Institutional Health & Conservationenterprise
logicsdigital techﬁnancePhilantropy andcharitable foundations

Sharia ﬁnance

Shareholder activism,
corporate governance& ﬁduciary duty

Innovation

SRI inScandinavia

CSR reputation &performanceSRI
in theUSA

Divestment

Philantrocapitalism

Pay-for-successﬁnancing

Socialentrepreneurship,enterprise &entrepreneurs

Social impact investing+
Moral responsibility

Hedging &diversiﬁcation

Pension Funds

ESG investing& integration
Performance evaluation(negative bias)+ ScreeningGreen& socialbonds
ESG index investing+ Islamic ﬁnance+ Other

Investing ethics

Performance evaluation(positive bias)+ DEA

Social impact bonds+
Impact investing

Investor´s perspective

Source: Author’s construction20

Our qualitative analysis of each cluster resulted in the identification of only two spurious modularity
classes (in the sense that no common theme was identified), one with three nodes and one with two
nodes (neither are encircled in Figure 5; they appear at the top right and top left in the Figure). Whilethe detailed discussion of each cluster exceeds the space available for this paper (for an overview,
see Annex I), we here indicate our key insights, which were established through the analysis of theclusters in terms six categories presented in the methodology. In particular, we proposed the labelling
for the clusters based on the themes that we identified after analysing the wordcloud of keywords
and the topic of the most central papers in each cluster.
I)

The largest cluster, with 35 nodes, is focused on themes related to shareholder activism, corporate
governance and fiduciary duty. Papers in this cluster were published on or after 2000, with thelargest number of papers published in 2018 and 2019. This confirms the assessment of the field
as depicted in Table 1.

II) The second largest cluster, with 32 nodes, is focused on investing ethics, including ethicalinvesting, performance of ethical investing and values-based portfolio selection strategies.
It is the ‘oldest’ cluster in the sample, in that the first paper in it was published in 1988. This
cluster is closely connected to another large (yellow) cluster focused on investors’ perspective on
ethical investing.
III) While the blue cluster grouping papers that looked at philanthropy and charitable foundations is also
linked to the investment ethics cluster, its papers are more recent (first paper in 2011), and also
deals with other contemporary themes such as mission investing and impact investing.
IV) The third largest cluster, with 30 nodes, could actually be broken into three, as it focuses on
three seemingly unconnected topics: Islamic finance; index investing; and other ‘academic’themes (ESG index investing + Islamic finance + Other). What linked those groups together were
papers that looked at the practice of index investing, be it ESG-related indexes or Islamicindexes.
V) While performance evaluation or the relationship between mutual fund performance and CSR are(secondary) topics that appear in many different clusters, two clusters can be characterized
as having performance evaluation as their primary theme. Interestingly, one of these clusters(large yellowish-green cluster: Performance evaluation (negative bias) + Screening) grouped papers
that achieved a ‘negative result’ in the performance evaluation, drew on modern portfolio
theory (e.g. Markowitz, 1991), and looked at screening strategies. The most cited paper in thesample, with 453 citations, appears in this cluster (Barnett and Salomon, 2006). The other(large light-pink cluster: Performance evaluation (positive bias) + DEA) grouped papers that achieved‘positive results’ in the performance evaluation, also drew on modern portfolio theory, and someof those papers used the Data Envelopment Analysis (DEA) method to evaluate performanceagainst a benchmark. The first paper in the “negative bias” performance cluster appears in
1997, while in the “positive bias” performance cluster the first paper appears in 2005. Onceagain, this result reinforces the qualitative assessment in section 3.
VI) The light purple cluster with 20 nodes is focused on ESG-investing themes, particularly thoserelated to ESG-integration strategies (valuation, fundamental analysis). The first paper in thiscluster appears in 2011.
VII) There are other four medium-sized clusters (ranging from 6 to 15 nodes) that are connected tothe main network and that focus on specific themes discussed in section 3: (1) green and social
bonds; (2) pension funds and institutional investors; (3) social entrepreneurship, enterprise and entrepreneurs;and (4) hedging and diversification”. Interestingly, two other medium sized clusters (on the left
side of the Figure) are not connected to the main network, and both deal with impact investing
themes: social impact bonds (first paper in 2016) and social impact investing (2009).
VIII)The five two-node clusters on the left side of the figure, and the four-node and four threenode clusters on the top the figure are all related to specific, niche themes. Some of these
themes are conceptual or focused on certain constructs (philantrocapitalism; innovation; NGOs;
institutional logics; Sharia finance) or are country-specific (SRI in Scandinavia). The other small clusters
seem connected to specific theme-based investing practices: social enterprise; conservation
finance; financing the health and pharmaceutical industry; and pay-for-success finance. All papers in those21

clusters were published after 2004, which is in line with the qualitative assessment made insection 3, in which thematic and cause-based investing were practices associated with the
responsible investing movement of the 2000s. None of these small clusters are connected tothe main network. Yet, one small cluster with three-node (yellow, on the right side of the figure)is connected to the main network (through links to the ESG investing cluster) and is focusedon divestment strategies.
The results from the analysis of the semantic network seem consistent with discussion of theevolution of the field (section 3). Yet, despite its surge in number of articles since 2014 (see figure 2),
the network shows disconnection between the impact investing clusters and the main network. While
this seems contradictory, it raises the hypothesis that research focused on the impact of investments
is not disconnected but disconnecting from the larger field which is still focused on traditional financethemes (such as risk-return assessments of ESG investments). Indeed, “impact” is increasingly
discussed from the perspective of development or policy studies. Such a dynamics could lead to a“new wave” of sustainability investing, informed by multi- or interdisciplinary studies. Therefore, we
advance our fourth proposition:(4)
We may be witnessing the emergence of a fifth wave of sustainability investing
triggered by new research and practices on “impact investing”.

5. Discussion of the four propositions and implications to sustainability transitions
This section is a discussion of the propositions of sections 3 and 4 in relation to an exploratory ‘theoryof change’ based on key results from sustainability transitions field. A theory of change (ToC) explainsa change process – in this case, a sociotechnical transition – by outlining causal linkages between
elements (in a sociotechnical system) to establish (transition) pathways. This exploratory TOC isbased on the understanding that in order to address the sustainability challenges, a fundamental
redirection of current socio-technical regimes is necessary. These regimes guide the provision ofenergy, water, mobility, food, healthcare, education, finance, security etc in functional systems. Achange of these regimes occurs through dynamic and complex interactions between niches, regimes
and the landscape, as conceptualised in the Multi-level Perspective (MLP) (Rip and Kemp, 1998; Geels,
2002; Geels and Schot, 2007), and emerging couplings across multiple systems (Konrad et al., 2008;
Schot and Kanger, 2018). This theory of change embraces the idea that transformations of dominant
and unsustainable sociotechnical regimes happens due to the confluence of the emergence andmaturity of alternative sociotechnical regimes in niches (protected spaces where actors experimentwith technological, institutional and behavioural innovations); the coupling of the regimes inducingchange in a similarly more sustainable direction; the influence of trends and shocks (the climate
crisis, increasing inequality, pandemics such as COVID-19; digitalisation) called the sociotechnicallandscape; and the destabilisation and opening up of existing regimes. Various combinations of thesedevelopments are possible, resulting in a wide range of pathways to sustainability (Geels and Schot,2007). We further detail the elements of this ToC in our discussion of the propositions.
Our first analytical proposition states that: “The literature on sustainability investing coevolved
with corporate social responsibility theory and with the practice and events of the field, revealing
four distinctive waves of ‘sustainable investing’.” Each new wave seems to have been motivated byconceptual and practical developments that provided stimuli for sustainability investing innovations.
In turn, these innovations led to new conceptualizations. While important developments, from asociotechnical transition theory perspective, these conceptualizations still have shortcomings forachieving systemic transformations towards sustainability for two reasons: first, they are incremental
formulations that keep tenets of the financial regime intact: the exclusive goal of maximizing financial
returns (or ‘shareholder value’) given the degree of calculable (financial) risk. That is, investing
intermediaries seek risk-adjusted wealth growth and most sustainability investing strategies are22based on this principle. As Naidoo (2020), Loorbach et al. (2020) and others have argued this is not
sufficient to count for necessary destabilisation of the existing dominant financial regime.
On the issue of traditionally appraised risk, it is also worth exploring the contradiction between
the view (by political forces that resist sustainability) that the consideration of ESG-factors is abreach of an investment intermediary’s fiduciary duty, due to the supposed near-to-medium
term underperformance of ESG-based portfolios. In 2020, for example, the Trump administration’s
Department of Labour (DOL) issued an executive order that in practice forced retirement plan
fiduciaries to base their investment decisions exclusively on traditional financial factors, justified on
the argument that ESG investments underperform traditional ones. It can be argued, however, thatto the extent that transformative change is set in motion, the medium and longer-term risk of manyof the current high-return investments is much higher. Short term returns become increasingly risky
in an era of dramatic change.33 So, in the context of pension fund investment, to keep the example,
which is traditionally thought of in terms of a portfolio mix between capital preserving and longerterm growth, the Trump administration proposal is simply an extension of a ‘denier’ perspective, whichis ultimately much riskier than a transformative investing orientation.34
Second from a sustainability transitions’ ToC perspective, these changes fall short, because they do
not provide a substantial stimulus of change of sociotechnical systems deeply implicated in generating
the sustainability challenges the world is facing. The underlying assumption is that investment canbecome ‘more efficient’ in delivering positive externalities by the selection of ‘greener’ or ‘moresocially sustainable’ companies. This may involve a change in direction of the companies but does
not necessarily make a change in direction in the sociotechnical regimes in which these companies
participate.
The practice of sustainability investing seems disconnected from sustainability transition theory,
which suggests that sociotechnical niches are key in transition processes (Grin et al., 2010; Kemp et al.,1998). Those niches therefore need to be shielded, nurtured and upscaled (Ghosh et al., 2020; Naberet al., 2017; Sengers et al., 2019; Turnheim et al., 2018), for which funding is needed. The processes ofshielding, nurturing and scaling go beyond individual projects and companies, they include processesof learning, networking, and institutionalisation that all go beyond investing in project and companies.
But from the mainstream investment perspective, funding will only go to niche building companies
that promise higher wealth growth, a principle shared by traditional sustainability investing practices.
As a class of investment, niche companies that offer highest potential to disrupt regime incumbents
are likely to pose the highest risks. Therefore, these companies are ‘adversely selected’ (a type ofmarket failure) by sustainability investors. While impact investing seems to be the exception in thisrespect, it also could benefit from adopting a more nuanced sustainability transitions theory ofchange, based on the contributions from sociotechnical transitions research on niche development(what makes them develop and expand). Such a theory of change will help to assess, evaluate andmonitor niche building capabilities of projects and companies and whether needed complementarymeasures are in place.
Our second proposition argues that: “Each wave of sustainability investing triggers new investment
strategies, while propelling upwards preceding ones (‘tidal effect’).” This type of layering poses a riskthat even impact investing may not be conducive to radical change. Yet, when deployed together aspart of a transformative investment portfolio, different strategies may help to promote transformations.
Considering (our third conclusion) that “sustainable investing strategies can be typified along certain
categories, namely: (a) approach (top down/ investment thesis or bottom up/ valuation); (b) orientation(mitigating negative externalities or inducing positive externalities); and (c) return on investment (fromzero to risk-adjusted)”, one may argue that what is missing is a new transformative investment frameworkthat provide coherence and align all types of strategies. Such investment framework should simultaneously

23draw on top-down principles/values and be amenable to bottom-up integration of impact metrics.
Furthermore, considering that sustainability transitions require not only the supporting of niches, butalso the destabilization and opening up of sociotechnical regimes (Ghosh et al., 2020; Karltorp and
Sandén, 2012; Turnheim and Geels, 2012), a new transformative investment framework will need toconsider practices that seek to avoid negative impacts, while also promoting positive change.
We know, based on sociotechnical transitions theory, that sudden replacement of dominant regimes
is unlikely. Thus, we suggest that the mainstream investing principles that are still sustained bysustainability investing becomes initial pivots for radical transformation – a process similar to what
Swilling (2020) calls “radical incrementalism”. Investments whose longer-term value can be monetised(and therefore offer calculable risk) rule out those radical yet uncertain (unquantifiable risk)
investment opportunities. But those initial monetizable ‘transformative’ investments should set inmotion developments that (a) reduce the value of some existing unsustainable practices (to promoteregime destabilisation or hollowing out of regimes) and (b) open up growth space for alternatives
which themselves may only in the medium-to-long term become worthy of investment. The levelof monetisation of the ‘set in motion’ investments will vary – some may not themselves yield nearmarket rate returns (even in the long run). However, the ‘follow on’ investments that benefit fromthese initial investments can be expected to yield substantial returns. This ‘coupling’ of nearer-term
enabling, monetizable investment with longer-term returns-oriented investment can be thought of asa type of intertemporal portfolio management strategy that we call transition enabling or a transformative
investment bundle. While our focus in this paper has been on financing transitions, we hypothesize that
this process of radical incrementalism could lead to a transition in the financial regime (or finance intransition).35
Our final analytical proposition states that: “We may be witnessing the emergence of a fifth waveof sustainability investing triggered by new research and practices on impact investing”. It is in thisnew wave that most opportunities for the creation of a destabilizing and potentially disruptive
pathway for transforming the financial regime are. However, impacting investing needs to be bothscaled up and more sophisticated theories of change must be employed to deliver on its impact
promises (as also argued by Busch et al., 2021). For instance, impact investment funds often selectcompany stocks based on the prospective positive impact of the products and services they offer,
without considering the systemic dependencies on which those products/services are contingent.
One may favour investment in electrical vehicles because they are better (pollution-wise) than fossil
fuelled vehicles, but without further change (e.g. car-sharing, introduction of mobility as a service),
a replication of the automobile stock with electrical vehicles does not go far enough in promoting asociotechnical transition to sustainability in the mobility regime.

6. Concluding remarks
This paper sought to contribute to the field sociotechnical transitions to sustainability, tackling theneglected topic of financing sustainability transitions. To this end, it mapped the field of sustainable
investing, to derive four analytical propositions, which were discussed against an exploratorysociotechnical sustainability transitions’ theory of change. In so doing, it provided an initial bridge
between the two fields.
Developing a new framework for sustainable investments – what we are calling transformative investment
framework – based on a detailed sociotechnical transitions TOC is an important area for future researchthat mobilizes concepts from both fields. We conclude by suggesting that such a framework should
lead to investments that:-

Go beyond compliance with ESG standards and beyond support for technological innovation(and indirect impacts), to account for systemic dependencies and intertemporal dynamics.

-

Are geared to the long term, can cope with uncertainty and are focused on generating benefits

24that may include but go beyond financial return.
-

Promote radical changes that are aligned with and create synergies at multiple levels in
different sociotechnical systems.

-

Are coordinated beyond market dynamics, requiring a political (not necessarily public) role andoffer new ways to address different ‘market failures.’-Appraise opportunities in terms social, ecological and financial values, risks and uncertainties,
a process which would require new valuation methods and indicators that reflect transition
and transformation dynamics. (This, in particular, is an important are for future research on
finance in field of sociotechnical transitions.)

These suggestions are connected to the exploratory sociotechnical transitions’ TOC outlined in section
5. In our concluding remarks, we further speculate about such a transformative investment framework. This
framework requires a multi-actor process due to the systemic nature of the required transformation.
On the one hand, the needed aligned or coordinated portfolios (bundles of investments) should target
clusters of projects, companies and technologies throughout the transformation process. Some ofthese investments will offer a return on investment, while other should be pursued on the basis of its‘public good’ profile36, requiring the action from public investors (e.g. development banks, researchand innovation agencies) or private donors (e.g. philanthropic foundations). These investments willoften need to be accompanied by institutional work not performed by investors, such as policy reform,
market articulation or cultural interventions. Open questions remain in terms of governance of this
this multi-actor investment process: whether there is a need for a coordinating agent and whether
such an agent would necessarily be public.
Still in terms of governance, we suggest, based on sociotechnical transitions theory, the need toreform structures and change rules that continue to be based on the goal of maximization of financial
value subject to the minimization of calculable risks. This is likely to pose the highest challenge, as it will
directly destabilize the investment regime, so that an alternative to overruling governance principles
directly would be to promote new ‘investor selection’ processes, i.e. seeking and retaining only those
who are aligned with the new framework for transformative investment (or ‘transformative investment
philosophy’), and, in particular, with the new risk and return profile of the bundle of investments.
This could be achieved through new types of investing intermediaries, who, if successful, would gain
legitimacy and attract imitative behaviour, which might be a way to address the scaling issue of
impact investment. In other words, this process could lead to the institutionalization of new practices
and promote a transition in finance. Note that the process does not assume that public coordinators
are a pre-condition for transformative investment.
While an alternative investment philosophy cannot be a direct substitute for the current financial
regime rules, it may be a philosophy that attracts investors through radical incrementalism andhence lead to viable strategy for specific investment intermediaries. Thus, intermediaries who are
more constrained by the rules of the existing regime might strive to reduce the barriers to the growthof alternative, radical investments that close the existing financial gap for transformative change.
We hypothesize, based on the key findings of sociotechnical sustainability transitions’ theory, that,
this way, private finance may be effectively mobilized in the support of the series of sociotechnicaltransitions needed to achieve lasting sustainability.

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Annex I: Summary of bibliographic (semantic) network clusters
ClusterNumber ofnodes

Other themes

2000

2018; 20191988

2010; 201878

35

shareholder
activismcost of capital;
corporate
governance;
financialperformance;
fiduciary duty

64

32

investing ethics

ethical investing;performance;
portfolio selection

30

ESG indexes;
islamic financefinancialperformance;
institutionalizationof SR investing;academic
perspectives

65

38

28

Year withYear of firstmost number Largest country %articleof articles

Main theme

data envelopment
performance
analysis; modern
evaluation (positive
portfolio
bias)(Markowitz) theory

2003

2005

2019

2019

Paper with highest
Citationsdegree centrality

63% USA

17% Business
EthicsShareholder
activism on
environmental
issues: A study of
proposals at large
US corporations(2000-2003)

33

39% South Africa

25% Business
EthicsThe "ethics" of
ethical investing65

Responsible
investing in South
Africa7

Morals, money,
ethical investingand economic
psychology

75

The "ethics" of
ethical investing65

23% USA

43% Business
Finance &Economics

Are environmentalsocial governanceequity indices abetter choice forinvestors? An Asian
perspective

6

Is there a role forIslamic bonds inglobaldiversification
strategies?

3

A critical review ofsustainablebusiness indicesand their impact

104

Risk and return
characteristics ofIslamic equity
funds

103

29% USA

32% Business
Finance; 21%
Management,
Operations
Research &Management
ScienceGreen and Good?
The Investment
Performance of US
Environmental
Mutual Funds

65

The Performanceof European
Socially
Responsible Funds

282

The price of ethics
and stakeholder
governance: The
performance ofsocially responsible
mutual funds

223

45% Business
Finance

The Alpha, Beta,and Sigma of ESG:
Better Beta,
Additional Alpha?

0

Measuring thelevel and risk ofcorporate
responsibility - An
empirical
comparison ofdifferent ESG rating
approaches

37

ESG Integrationand the Investment
Management
Process:
Fundamental
Investing
Reinvented

35

20

ESG investing

financialperformance; ESG
integration

52

18

performance
evaluation(negative bias)

screening; modern
portfolio(Markowitz) theory

ClusterNumber of
nodes

Main theme

Other themes

45

16

investor's
perspective

behaviour; surveys

2002

2016

44% USA

50% Business
Ethics + Business
Finance &Economics

77

16

philantropy andcharitablefoundations

mission investing;
impact investing;financialperformance

2011

2017

38% USA

50% Business(Ethics, Finance,
Economics); 13%Interdisciplinary

71

15

green and social
bonds

bonds; religious
and faith-based
investing;screening

1984

2019

40% USA

20% Business,
Finance,
Economics

pension funds

institutional
investment;
activism/
engagement;
financialperformance

40

60

69

79

13

10

social impact
bonds

8

socialentrepreneurship,enterprise andentrepreneurs

impact investing

impact investing

2011

1997

2016; 20192016; 2017

40% USA

28% USAYear withYear of firstmost number Largest country %articleof articles

2004

2016

2011

2013

2019

2019

Paper with second
Paper with second
Paper with mostCitationsCitationshighest degree Citations
most citations
citationscentrality
The Impact ofDoes the stock
The impact ofBetter Corporate
market fully value
corporate social
Socialintangibles?
301
responsibility on
323
Responsibility
75
Employee
the cost of bankDisclosure on thesatisfaction andloans
Cost of Equity
equity prices
CapitalLargest WoS
category

22% Business
Finance
Largest WoS
category

38% USA

46% Business
Ethics

30% Italy

20% Green &Sustainable
Science &Technology,
Environmental
Sciences,
Environmental
Studies

Business Models
for Sustainable
Finance: The Case
Study of Social
Impact Bonds

25% Business

The Social
Enterprise
FinancingLandscape: The Layof the Land and
New Research on
the Horizon

28

The eco-efficiency
premium puzzle

15

Assessing SRI Fund
Performance
Research: Best
Practices in
Empirical Analysis

Beyond dichotomy:
Do Socially
The curvilinear
2005 report on
Responsible
relationshipSocially responsible
socially responsible
Investment Policies
205
453
between social
16
stocks: a boon for2
investing trends in
Add or Destroy
responsibility andinvestors in India
the United States
European
Stock
Paper
with second
financial
Paper with highest
Paperwith mostPaper with second
Value? Citations
highest degree
Citations Portfolio
CitationsCitationsperformance
degree centrality
citationsmost citations
centrality
Socially responsible
Socially
A picture of the
The investment
investments:
Responsible
frame: Frame
behavior of socially
Institutional
54
Investing: An
1122
analysis as415
responsible
aspects,
Investor
technique and as
individual investors
performance, andPerspective
politics
investor behavior
BeyondBeyond Socially
Overcoming the
A tale of valuesGrantmaking: An
Responsible
Challenges ofdriven and profitInvestigation of
14
Impact Investing:109
01
Investing: Effects ofseeking social
Program-Related
Insights from
Mission-Driven
investors
Investments by US
Leading Investors
Portfolio Selection
Foundations
What Future for
the Green Bond
From Preaching to
The effect of proMarket? How Can
Investing: Attitudes
environmental
Policymakers,
The effect of greenof Religious
preferences on
29
Companies, and18
Organisations
0
investment on
228
bond prices:
Investors Unlock
Towards
corporate behavior
Evidence fromthe Potential of the
Responsible
green bonds
Green Bond
Investment
Market?
The Drivers of
Responsible
Investment: The
Case of European
Pension Fund

50% USA

81

33

European Pension
Funds and
Sustainable
Development:
Trade-Offs
between Financeand Responsibility

4

Grant-Maximizing
but not MoneyMaking: A Simple
Decision-TreeAnalysis for Social
Impact Bonds

8

On the boundaries
of socialentrepreneurship:a review ofrelationships withrelated researchdomains78

nvesting in socially
responsible
companies is amust for public
pension funds Because there is no
better alternative

68

6

In the wake of
austerity: social
impact bonds andthe financialisationof the welfare statein Britain

33

Impact Investing: A
Primer and Reviewof the Literature

11

6

Everydaydiscourses of stock
market investing:Searching forinvestor power andresponsibility

10

Tip of the Iceberg:
The Nonprofit
Underpinnings of
For-Profit Social
Enterprise10

7

Pension fundcorporate
engagement - The
fifth stage ofcapitalism

Cluster63

8

Number of
nodes

7

6

Main theme

Other themessocial impact
investingmoral
responsibility;
Africa; Asia

hedging anddiversification

GARCH model;
commodities;
Brazil

21

4

NGOs

food industry;business leadership2

3

unidentified

unidentified

11
Cluster3
Number ofnodes

divestment
Main theme

54

3

institutional logics

Germany82

3social enterprise

impact investing89

3

ocean conservation

ecosystem
services; impact
investing92

3

health andpharmaceuticalindustry

digital economy

16

2

SRI in Scandinavia[same author]

financialperformance; fossil
fuel industry; bestOther themes
in-class42

2

undefined

undefined

ClusterNumber of
nodes

Main theme

Other themes

47

2

sharia financeislamic finance

81

2

85

2

innovation

technology; social
innovation; clean
tech

87

2

pay-for-success[sameorganization]

all others

66

philantrocapitalism gates foundation

SRI

performanceYear withYear of firstmost number Largest country %articleof articles

2009

2014

2004

2018

2020

2004; 2012;2015; 201943% USA andEngland

33% USA

50% USA

Largest WoS
category

Paper with highest
Citationsdegree centrality

Paper with second
Paper with mosthighest degree Citations
citationscentrality

29% BusinessSocial impact
investing,agriculture, andthe financialisationof development:
Insights from subSaharan Africa

0Social Impact
Investing for
Marginalized
Communities inHong Kong: Cases
and Issue

50% Economics

Modeling volatility
and conditionalcorrelations
between socially
responsible
investments, gold
and oil

26

Diversification andoptimal hedges forsocially responsible
investment inBrazilAgronomy;
Biotechnology;
Business Ethics;
Food Science

The role of socially
responsible
investing andmedia in theenvironmental
stewardship offood industry
companies2

Non-governmentalorganizations,shareholder
activism, andsocially responsible
investments:
Ethical, strategic,
and governanceimplications

Business Finance; Finance: Socially
Biodiversity
responsible
Conservation;
investing can earn
Information
you money while
Scienceyou do good0

Citations0

Stakeholder Duties:
On the Moral
Responsibility ofCorporate
Investors

100Modeling volatility
and conditionalcorrelations
between socially
responsible
investments, gold
and oil

26

147

Non-governmentalorganizations,shareholder
activism, andsocially responsible
investments:
Ethical, strategic,
and governanceimplications

147

Paper with second
Citationsmost citations
Investing for profit,
investing for
impact: Moral
performances inagriculturalinvestment
projects
Dynamic
relationships
between crude oil
prices and socially
responsible
investing in Brazil:
evidence for linear
and non-linear
causality
The role of socially
responsible
investing andmedia in theenvironmental
stewardship offood industry
companies872More than profits:More than profits:
Selected resources
Selected resourcesin sociallyin socially1
1
Green men0
responsible
responsible
investinginvesting
The effects of the
Elevating the Role
Fossil Fuel
Fossil Fuel
33% USA; Canada; 66% Businessfossil fuelof Divestment in
Divestment andDivestment andYear with
Paper
with second
17
1
2
2018
2018;
2019
17
divestment
Socially
Netherlands & (Ethics; Finance &Year of first
Largest WoS
PaperPortfoliowith highest
Paperwith mostPaper with second
Portfolio
most number Largest
highest degree
country %Citations campaign
CitationsCitationson stock Citations
Responsible
ScotlandEconomics)
articlecategory
degreecentrality
citationsmost citations
Performance
Performanceof articles
centrality
returns
InvestingSocial Impact
Social Impact
Investing in
Investing in
The Rise of Socially
The Rise of Socially
Germany: Current
Germany: Current
Responsible
Responsible
Impediments from
Impediments from
Investment Funds:
Investment Funds:
6
6
2015
irrelevant
irrelevant
irrelevant
14
14
Investors' andInvestors' and
The Paradoxical
The Paradoxical
SocialSocialRole of theRole of theEntrepreneurs'
Entrepreneurs'
Financial Logic
Financial Logic
Perspectives
Perspectives
Financial social
Financial social
Impact Investing
innovation to
innovation toStrategy: Managing
Performance ofengage theengage theConflicts between
impact investing: A
2
2017
2019
irrelevant
irrelevant
5
economicallyeconomically55Impact Investor
value creation
marginalized:
marginalized:
and Investee Social
approachinsights from aninsights from anEnterprise
Indian case study
Indian case study
In oceans we trust:
In oceans we trust:MarineMarineConservation,
Conservation,
Environmental
conservationconservation
philanthropy, andphilanthropy, andStudies;
16
finance: The needfinance: The need222015
irrelevant
66% Australia
the political
the political
16
Biodiversity;
for and scope of an
economy of theeconomy of thefor and scope of an
Oceanography
emerging field
Phoenix Islands
Phoenix Islands
emerging fieldProtected Area
Protected Area
Benchmarking andBenchmarking andTransparency:
Transparency:
A sociology ofIncentives for the
Incentives for the
From the2010
irrelevant
66% Russia
irrelevant
health care in the0
PharmaceuticalPharmaceutical30
30
Institutional to the0
digital age
Industry's
Industry's
Platform Economy
Corporate Social
Corporate Social
Responsibility
Responsibility
A History of
A History of
Scandinavian
Scandinavian
SociallySocially
2008
2008
100% Belgium
irrelevant
undefined
undefined
37
12
Responsible
Responsible
Investing
InvestingUnleashing theThink Global, Invest
Powerful Few:
Sustainable
Responsible: Why
18
Investingthe Private Equity
2013
irrelevant
irrelevant
irrelevant
undefined
undefined
17
Year with
Paper with second
Behaviour ofIndustry Goes
Year of first
Largest WoS
Paper with highest
Paper with mostPaper with second
most number Largest country %Citations highest degree Citations
Citations Wealthy Private Citations
Green
articlecategory
degree centrality
citationsmost citationsof articles
centrality
Investors
Sharia disclosures:
Do managers of
An exploratory
sharia-compliant
study from thefirms haveperspective of
8
2016
irrelevant
irrelevant
Business Finance
undefined
undefined
1
Sharia-compliant
distinctive financial
companies andstyles?
professional users
The philanthropic
state: market-state
Philanthrocapitalis
10
2014
irrelevant
irrelevant
irrelevant
undefined
undefinedhybrids in the
53
m Rising
philanthrocapitalistturn
A social capital
Unlocking financeparadox:
Entrepreneurial
for social tech start2016
irrelevant
irrelevant
irrelevant
undefined
undefined
10
7
dynamism in a
ups: Is there a newsmall world clean
opportunity space?
technology cluster
Pay For SuccessUsing Benefit-Cost
And Population
Analysis to Scale
Health: Early
Up Early Childhood
2015
irrelevantUSA
irrelevant
undefined
undefined
Results From
108Programs throughEleven Projects
Pay-for-Success
Reveal Challenges
Financing
And Promise
1984

1993

irrelevant

2019

irrelevant

33% USA

41% Business29

Socially responsible
investing in the
United States

136

An investigation of
corporate social
responsibility
reputation andeconomic
performance

125

Trends in theliterature onsocially responsible
investment:
looking for the keys
under thelamppost

56

What's in a Name:
An Analysis of
Impact Investing
Understandings by
Academics andPractitioners

54Endnotes
1

In real terms (December 2020), these values, when corrected by the US Consumer Price Index (CPI), would be USD 5.6-8.3 trillion and USD 3.75.0 trillion, respectively.

2

The UNCTAD identifies ten SDG sectors: Power; Transport; Telecommunications; Water and Sanitation; Food Security and Agriculture; Climate
Change Mitigation; Climate Change Adaptation; Ecosystems/Biodiversity; Health; and Education.

3

UNCTAD’s 2014 estimates can be regarded as optimistic, considering e.g. the current situation due to the COVID-19 pandemic or the “tradewar” between the US and China, both of which could lead to lower availability of financial resources.

4 According to the World Bank, annual global gross capital formation has doubled between 2000 and 2019, to reach USD 26.3 trillion in 2019 (inreal terms, 2020 USD), implying that up to one third of total gross capital formation must be directed to the SDGs if these are to be achieved.
If this is done, what capital investments will be displaced by this level of commitment and will the returns on this type of capital investment
be sufficient to sustain gross capital formation in succeeding years?
5

In order to restrict the results to articles that focused on finance, we searched in the Article title field. The additional string was: (investor* OR
investing OR investment* OR financ* OR bank* OR capital OR money). We decided not to search in the Article title, Abstract, Keywords field,
because it resulted in many articles whose focus was not finance but mentioned in the abstract (“in passing”) one of the searched keywords.

6

This is not to say that sustainable finance and investment is a neglected research topic, in general. For instance, Friede et al. (2015) reviewed
more than 2,000 empirical studies that looked at the specific question of how and whether environmental, social and governance factors
affect corporate financial performance. We thank one reviewer for raising this point.

7

Additional string (Article title field) for energy: (energy OR electricity OR oil OR fuel* OR renewable OR petroleum). And for mobility/transport:(mobility OR transport* OR car* OR automobile*). The results indicate that c. 33% of the articles in our sample deals with mobility or energy,
and in the case of the top five journals more than 40% have at least one of these empirical focuses (but here the results are somehow biasedby the presence of Energy Policy). An alternative strategy would be to look for articles published in the field’s flagship journal – Environmental
Innovation and Societal Transitions (EIST) – that used finance-, energy- or mobility-related words in the title. Since 2011, 456 articles were
published in EIST (according to the Scopus database). Of these, 17 (3.7%) had a core focus on finance while 87 (19.1%) focused on energy and
43 on mobility (9.4%). Note that not restricting the search to articles that necessarily have transition-related words (string in footnote 1) inthe title/abstract/keywords results in a higher number of finance-focused articles.

8

As we will show from session 4 onwards, ESG is part of the jargon of the sustainable investing practice. ESG metrics are used to access thedegree of sustainability of companies and thus help in sustainable investment portfolio decisions.

9

A sociotechnical regime “refers to the semi-coherent set of rules that orient and coordinate the activities of the social groups that reproduce
the various elements of socio-technical systems” (Geels, 2011, p. 27). (A socio-technical system is defined as a network of the resources –material, human or institutional – that are required for fulfilling societal functions, such as transport, communication, nutrition, energy or
finance.)

10 Analyzing the other three facets – financial institutions in transition; the overall (macro) transition of the financial system and the (micro)
transition of the financial profession – falls outside the scope of this paper.
11 In this paper, we follow Busch et al. (2016) and use the term sustainability/sustainable investment/investing as an overarching (or “generic”)
terms to cover all investment practices that consider environmental, social or governance issues when making investment decisions. Notethat while it is more common to refer to this literature as ‘sustainable investing’, we prefer to use ‘sustainability investing’, as the former
seems to imply that the investment is sustainable, while the latter would imply investment aimed at sustainability. Nevertheless, we use themindistinctively throughout the paper.
12 We recognize these criteria is somehow arbitrary, but because we intend to give an overview (and not a systematic review) of the field, it isadequate for the purpose. Furthermore, we complement it with the second method.
13 The syntax was [“ethical investing” OR “socially responsible investing” OR “responsible investing” OR “sustainable investing” OR “sustainability
investing” OR “green investing” OR “esg investing” OR “impact investing”]
14 English is the language of the vast majority of the papers in the field and, thus, the language for our semantic network. However, all articles
in the Web of Science are indexed with a title and an abstract in English, even if they are in another language – this part of the screening wasthus a zealous step.
15 This pairwise document comparison is somewhat computationally intensive as for the 369 documents there are 67,896 pairs.
16 The examination of the WoS categories (b) proved less useful.
17 They also mention terms that are less frequently employed such as: community investing, environmentally responsible investing, faith-based
investing, mission-based or mission-related investing, moral investing, social choice investing, green investing, red investing, white investing. To
this list, it could be further added: philanthropic investment; thematic investment; ESG investment; impact investment, among others.
18 This field was institutionalized in 1971 as the Social Issues in Management (SIM) division of the American Academy of Management (AOM)(Carroll, 1999).
19 In deontological ethics, the morality of an action is judged against a set of principles or values and not in terms of its consequences, as inhedonic or utilitarian ethical position.
20 In a later work, Davis (1973) thus expressed his ‘Iron Law’: “Society grants legitimacy and power to business. In the long run, those who do not
use power in a manner which society considers responsible will tend to lose it” (p. 314).
21 Similar – and in some ways more profound – arguments against CSR were expressed, at least one decade before Friedman, by the Austrian
economist Friedrich von Hayek, who constructed his criticism not only on the notion of corporate responsibilities but also on the idea ofsocial (Kusunoki, 2016). The MSV maxim is later associated with Michael Jensen, who published, with William Meckling, a very influential paper(Jensen and Meckling, 1976 – which has almost 100,000 citations) and promoted it in the business school (MBA) context, therefore influencing
generations of business executives.
22 The “fiduciary” is a person that acts on behalf of another. Portfolio and fund managers, financial advisors, and other intermediaries are
considered fiduciaries who hold the responsibility of acting in good faith to preserve or increase their client’s wealth.

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23 Voluntary signatories (currently 2,500 parties) agree to incorporate six principles in their investment decision-making and active ownership
practices: (1) incorporating ESG issues into investment analysis and decision-making processes; (2) being active owners and incorporate
ESG issues into ownership policies and practices; (3) seeking appropriate disclosure on ESG issues by the entities invested; (4) promoting
acceptance and implementation of the Principles within the investment industry; (5) working together to enhance effectiveness in
implementing the Principles; and (6) reporting on own activities and progress towards implementing the Principles.
24 This shift from avoiding negative externalities to creating positive externalities seems a consequence of what Busch et al. (2016) call aparadox: “sustainable investments do not necessarily spur sustainable development” (p. 6).
25 Krosinsky (2017) seems to directly draw on the Eurosif (2012) classification of sustainable investment (we thank one of the reviewers forpointing this out), when it merged screening categories from its previous reports (e.g. “ethical screening” and “simples screening” into“negative screening”). This classification is also compatible with other institutions’ like the Global Sustainable Investment Alliance (GSIA), UN
Principles for Responsible Investment (PRI) or the European Fund and Asset Management Association (EFAMA), which use slightly different
terminologies (as Eurosif (2012, 2016) point out, the EFAMA classification does not have categories equivalent to ESG Integration and Impact
Investing, while the PRI does not have one for Impact Investing). Since 2012, Eurosif has not changed its taxonomy of strategies (Eurosif, 2018).
26 Given that Islamic or sharia finance prohibits collection of interests (financial rents) and the investment in certain industries (alcohol, gamblingand pork, most notably), it is considered a type of negative screening investment strategy).
27 The Global Impact Investing Network suggests the following best practices for impact measurement: establishing and stating social andenvironmental objectives to relevant stakeholders; setting performance metrics/targets related to these objectives using standardized
metrics wherever possible; monitoring and managing the performance of investees against these targets; and reporting on social andenvironmental performance to relevant stakeholders. See https://thegiin.org/impact-investing/need-to-know/; accessed on 3/5/2020.
28 http://www.gsi-alliance.org/; accessed on 3/5/2020.
29 An important issue that affects estimates of the size of different sustainability investing strategies is double-counting (Scholtens, 2014).
However, GSIA (2019, p. 7) claims to have adjusted its numbers to avoid it: “The sum of these individual strategies, after adjusting for double
counting since some assets are managed using more than one strategy, results in the sustainable assets under management included in thisreport.”30 The estimating methodology attempts to avoid the issue double-counting.
31 In the 4-year period between 2013 and 2017, as Eurosif (2018: 73) considered earlier estimates problematic due to “lack of clarity in theparameters governing the integration of ESG factors”, making values from different organizations hard to compare.
32 This is problematic, given the “paradox” of earlier sustainable investing strategies failing to promote sustainable development (Busch et al.,2016).
33 The Deep Transitions framework (Schot and Kanger, 2018) suggests we are approaching a discontinuity, which implies that the likelihood offundamental changes in valuation is increasing. If this discontinuity can be brought forward in time, anticipatory investments for what lays on
the other side of the transition process are likely to have nearer term monetary rewards.
34 Note that this argument is different than adopting as a principle the minimization of ecological risks, which Loorbach et al. (2020) call for“transition finance”.
35 We thank one of the reviewers for this insight.
36 Strictly speaking, a ‘public good’ is defined for not being privately appropriable (one cannot exclude others from its consumption or capturerents generated by it) and for being non-rival (its consumption does not diminish its stock), with classic examples being clean air, herd immunity
or any type of positive externality (such as those expected from certain transformative investments). Markets are ill-suited allocators ofresources for the production of public goods (a market failure).

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