Abstract

This multidisciplinary review analyses how sustainable investing influences environmental and social outcomes. It develops a framework of three investor impact strategies—portfolio screening, shareholder engagement, and field building—and synthesises evidence across management, finance, sociology, and ethics/sustainability. The authors identify 15 impact mechanisms and show that investor impact emerges gradually through interaction among diverse shareholders.

Introduction

Sustainable investing has expanded rapidly, intensifying debate over whether investors can materially influence corporate sustainability. While some practitioners claim investors drive change faster than governments, critics argue impacts are overstated. Prior research has focused narrowly on portfolio screening and shareholder engagement. This review addresses that limitation by explaining how sustainable investing creates impact and by broadening the analysis to include field-level effects.

The three impact strategies of sustainable investing

The paper extends Hirschman’s concepts of exit and voice to identify three shareholder voices—market, private, and public—each underpinning a distinct impact strategy. Portfolio screening uses market voice to reallocate capital. Shareholder engagement relies on private voice through dialogue, voting, and proposals. Field building uses public voice to influence norms, standards, and regulation. These strategies differ in their mechanisms, users, and typical outcomes.

Review methods

The authors reviewed 3,786 papers from 26 leading journals and identified 69 studies that explicitly examine the impact of sustainable investing. The sample spans four disciplines and includes conceptual, quantitative, qualitative, and mixed-methods research. Papers were classified by impact strategy and by type of impact, enabling identification of 15 recurring impact mechanisms.

How the three impact strategies influence corporate sustainability

How portfolio screening influences corporate sustainability

Portfolio screening creates direct impact by subsidising sustainable firms through a lower cost of capital and by incentivising less sustainable firms to improve to attract investors. Some studies suggest material effects require a sizeable investor share, with estimates around 20 per cent ownership. Screening also generates indirect effects by creating anomalies that challenge prevailing assumptions about risk and by reshaping institutional expectations regarding sustainability.

How shareholder engagement influences corporate sustainability

Shareholder engagement is the most extensively studied strategy. Direct impact is more likely when shareholders are salient, collaborate with others, raise issues aligned with business risk or societal norms, and target receptive firms. Evidence links engagement to improved environmental and social policies, though impacts are uneven and sometimes incremental. Indirect effects arise when engagement shapes other investors’ risk perceptions or creates internal structures that enable future influence. Engagement can also prompt peer firms to reassess industry norms.

How field building influences corporate sustainability

Field building does not typically produce immediate firm-level effects. Instead, it operates indirectly by influencing other shareholders and the institutional context. Mechanisms include shifting how issues are evaluated, sharing expertise, delegitimising harmful activities, establishing voluntary standards, and supporting regulatory change. Evidence from divestment campaigns and standard-setting initiatives shows limited short-term price effects but more durable normative and regulatory influence over time.

A research agenda on shareholder impact as a distributed process

Analysing the interaction between direct and indirect impact

Future research should examine how indirect impacts, such as norm shifts, affect the success of direct engagement, and how visible engagement successes stimulate broader mobilisation.

Explaining why shareholders use different impact strategies

Research is needed on why mainstream investors prioritise screening and engagement while peripheral investors focus on field building, including the role of incentives, time horizons, and return expectations.

Reconstructing the limits of specific impact strategies

Further work should explore how internal company dynamics shape responsiveness to investor pressure and where different strategies risk symbolic rather than substantive change.

Conclusion

The review demonstrates that sustainable investing can influence corporate sustainability through multiple, interacting pathways. Impact is best understood as a distributed process, dependent on coordination among diverse investors over time. This framework clarifies both the potential and the limits of sustainable investing in addressing environmental and social challenges.