Are impact and financial returns mutually exclusive ? Evidence from publicly-listed impact investments

Interest in impact investing is on the rise. And yet, there is a relative scarcity of academic literature on the financial performance and diversification potential of impact investments. In this paper, we apply a risk factors and dynamic correlation analysis to an original dataset essentially made of European publicly-listed impact firms. Our findings point to a risk-adjusted underperformance of impact investments compared to mainstream markets, and reveal impact firms’ failure to deliver non-negative returns to investors. This contradicts the practitioner literature, and suggests that investors must sacrifice financial returns for investing in line with their values. The results also indicate that the diversification potential of listed impact investments with regard to mainstream markets slowly decreases over time, suggesting that impact investors attach only limited weight to this aspect.