The Performance of Impact Investments Compared to Peers

Abstract

This thesis aims to contribute to a better understanding of impact investment and its overall performance. The thesis examine how impact investment practices can achieve a balance between financial returns while also promoting social and environmental conditions to contribute to achieving UN’s Sustainable Development Goals [SDGs] and improving global welfare. The research conducts an analysis of five specific listed impact investments and compares them with peers using peer analysis. Performance is assessed through returns and risk metrics, including risk- adjusted measures such as Sharpe ratio and Information ratio. Impact performance is measured using Sustainalytics’ Impact Metrics, which express the investments’ contribution to the UN’s SDGs. The findings are contextualized and discussed within existing literature, drawing comparisons to the empirical study conducted by Bernal et al. (2021), revealing that impact investments can indeed yield higher financial returns than benchmarks, both in the general market and compared to peers. Most impact investments demonstrate the ability to achieve higher risk-adjusted returns than their peers on average, indicating efficiency in compensating investors for the risk undertaken. The study also unveils a range in the performance of impact investments, with two out of the five selected investments exhibiting a financial excess return and making a more significant contribution to SDGs than their peers. In conclusion, investors do not necessarily need to sacrifice financial returns when engaging in impact investments. This shifts the understanding of impact investments’ performance relative to previous studies. The thesis contributes insights valuable to both scholars and practitioners, while also suggesting potential avenues for future research. The thesis recommends future research to take a critical approach to the uncertainty of impact data and advocates for expanding the study to include the European market for a more comprehensive understanding of impact investments’ performance.