The Impact of Impact Investing

This paper theoretically and empirically assesses the impact of socially responsible investing, particularly divestment in secondary markets. It argues that while direct investments in primary markets and increased voting rights through engagement are likely to be effective, divestment often has negligible real impact on company operations. The analysis provides a formula to calculate the change in cost of capital from divestment, concluding that a substantial effect would require an unrealistically high proportion of socially conscious capital. Empirical evidence from index inclusions and exclusions corroborates these findings, suggesting that current divestment levels yield minimal influence on firm decisions.