Impact investing has gained prominence as a strategy to generate measurable social and environmental impact alongside financial returns. Defined by the principles of intentionality, measurability, and additionality, impact investing has witnessed significant growth, surpassing $1 trillion in assets under management at the end of 2021. However, the sector faces challenges in maintaining impact integrity, particularly due to the growing concern of impact washing – the deliberate misrepresentation of investments’ impact. This phenomenon threatens the credibility of impact investing and emphasises the need for enhanced impact governance mechanisms, transparency, and accountability. This dissertation investigates how financial firms, particularly investment management companies, address impact washing risks and what governance mechanisms can ensure integrity in impact investing. It does so through three research papers, each targeting a specific objective. Paper 1 examines the extent of impact washing in the European financial market. Through a quantitative study on over 52,000 investment funds, the paper highlights the category fuzziness in fund classification under the Sustainable Finance Disclosure Regulation (SFDR). Findings suggest that many Article 9 funds, which should pursue sustainability objectives, behave similarly to Article 6 funds, which do not. This questions SFDR’s effectiveness in preventing impact washing. Paper 2 explores the legal implications of impact washing and the rising trend of impact litigation. Using qualitative data from interviews with impact investment managers and lawyers, the study identifies key litigation risks, including definitional ambiguity, lack of standardised impact measurement, and misalignment of interests among stakeholders. It proposes rigorous impact governance mechanisms, including clear contractual frameworks, to mitigate these risks. Finally, Paper 3 addresses the lack of stakeholder engagement in impact investment governance. Applying dialogic accounting theory, the study develops a participatory decision-making framework that integrates stakeholders’ perspectives at key stages of impact measurement and management (IMM) processes. Findings indicate that inclusive governance structures enhance accountability and transparency, ultimately reducing impact washing risks. The dissertation contributes to impact investing literature by combining definitional discussions with empirical insights on impact integrity and impact washing. It leverages theories such as organisational category theory, agency theory, and dialogic accounting to explain and counteract impact washing incidents, while proposing actionable solutions. On a practical level, the research calls for strengthening regulatory frameworks, enhancing governance structures to mitigate litigation risks, and ultimately adopting participatory decision-making models for impact investment processes. While the study focuses on the European market, its findings highlight broader challenges in sustainable finance. Future research could explore different financial instruments, regulatory environments, and geographical contexts to further refine strategies for ensuring impact integrity in the evolving impact investing landscape.
L’impact investing si è imposto come strategia per generare un impatto sociale e ambientale misurabile insieme a rendimenti finanziari. Definito dai principi di intenzionalità, misurabilità e addizionalità, il settore dell’impact investing ha registrato una crescita significativa, superando i 1.000 miliardi di dollari in asset in gestione alla fine del 2021. Tuttavia, il settore deve ora affrontare sfide nella preservazione dell’integrità dell’impatto, in particolare a causa della crescente preoccupazione per l’impact washing – ossia la deliberata distorsione dell’impatto generato dagli investimenti. Questo fenomeno minaccia la credibilità dell’impact investing e sottolinea la necessità di rafforzare i meccanismi di governance dell’impatto, la trasparenza e la responsabilità. Questa tesi analizza come le società finanziarie, in particolare le società di gestione degli investimenti, affrontano i rischi legati all’impact washing e quali meccanismi di governance possono garantire l’integrità dell’impact investing. Lo fa attraverso tre paper scientifici, ciascuno incentrato su uno specifico obiettivo. Il primo paper esamina la diffusione dell’impact washing nel mercato finanziario europeo. Attraverso uno studio quantitativo su oltre 52.000 fondi di investimento, l’articolo mette in luce la category fuzziness nella classificazione dei fondi secondo la Sustainable Finance Disclosure Regulation (SFDR). I risultati suggeriscono che molti fondi classificati come Articolo 9, che dovrebbero perseguire obiettivi di sostenibilità, si comportano in modo simile ai fondi Articolo 6, che non devono sottostare a tali vincoli. Questo mette in discussione l’efficacia della SFDR nella prevenzione dell’impact washing. Il secondo paper esplora le implicazioni legali dell’impact washing e la crescente tendenza ai contenziosi in materia di impatto (impact litigation). Attraverso dati qualitativi provenienti da interviste con gestori di investimenti a impatto e avvocati, lo studio identifica i principali rischi di contenzioso, tra cui l’ambiguità delle definizioni, la mancanza di standardizzazione nella misurazione dell’impatto e il disallineamento di interessi tra gli stakeholder. Propone, quindi, meccanismi rigorosi di governance dell’impatto, inclusi chiari framework contrattuali, per mitigare tali rischi. Infine, il terzo paper affronta la mancanza di coinvolgimento degli stakeholder nella governance degli investimenti ad impatto. Applicando la teoria dialogic accounting, lo studio sviluppa un framework decisionale partecipativo che integra le prospettive degli stakeholder nelle fasi chiave dei processi di misurazione e gestione dell’impatto. I risultati indicano che strutture di governance più inclusive migliorano la trasparenza e la responsabilità, riducendo il rischio di impact washing. Questa tesi contribuisce alla letteratura sull’impact investing combinando discussioni teoriche con analisi empiriche sull’integrità dell’impatto e sull’impact washing. Utilizza teorie come la organisational category theory, l’agency theory e la dialogic accounting theory per spiegare e contrastare i fenomeni di impact washing, proponendo soluzioni concrete. A livello pratico, la ricerca sottolinea la necessità di rafforzare i framework normativi, migliorare le strutture di governance per ridurre i rischi di contenzioso e adottare modelli decisionali partecipativi nei processi di investimento a impatto. Sebbene lo studio si concentri sul mercato europeo, i risultati evidenziano sfide più ampie nel contesto della finanza sostenibile. Le ricerche future potrebbero esplorare altri strumenti finanziari, ambienti normativi differenti e contesti geografici vari per affinare ulteriormente le strategie volte a garantire l’integrità dell’impatto nel panorama sempre in evoluzione dell’impact investing.
Unveiling integrity in impact investing : an empirical analysis of the european industry
Cremasco, Chiara
2024/2025
Abstract
Impact investing has gained prominence as a strategy to generate measurable social and environmental impact alongside financial returns. Defined by the principles of intentionality, measurability, and additionality, impact investing has witnessed significant growth, surpassing $1 trillion in assets under management at the end of 2021. However, the sector faces challenges in maintaining impact integrity, particularly due to the growing concern of impact washing – the deliberate misrepresentation of investments’ impact. This phenomenon threatens the credibility of impact investing and emphasises the need for enhanced impact governance mechanisms, transparency, and accountability. This dissertation investigates how financial firms, particularly investment management companies, address impact washing risks and what governance mechanisms can ensure integrity in impact investing. It does so through three research papers, each targeting a specific objective. Paper 1 examines the extent of impact washing in the European financial market. Through a quantitative study on over 52,000 investment funds, the paper highlights the category fuzziness in fund classification under the Sustainable Finance Disclosure Regulation (SFDR). Findings suggest that many Article 9 funds, which should pursue sustainability objectives, behave similarly to Article 6 funds, which do not. This questions SFDR’s effectiveness in preventing impact washing. Paper 2 explores the legal implications of impact washing and the rising trend of impact litigation. Using qualitative data from interviews with impact investment managers and lawyers, the study identifies key litigation risks, including definitional ambiguity, lack of standardised impact measurement, and misalignment of interests among stakeholders. It proposes rigorous impact governance mechanisms, including clear contractual frameworks, to mitigate these risks. Finally, Paper 3 addresses the lack of stakeholder engagement in impact investment governance. Applying dialogic accounting theory, the study develops a participatory decision-making framework that integrates stakeholders’ perspectives at key stages of impact measurement and management (IMM) processes. Findings indicate that inclusive governance structures enhance accountability and transparency, ultimately reducing impact washing risks. The dissertation contributes to impact investing literature by combining definitional discussions with empirical insights on impact integrity and impact washing. It leverages theories such as organisational category theory, agency theory, and dialogic accounting to explain and counteract impact washing incidents, while proposing actionable solutions. On a practical level, the research calls for strengthening regulatory frameworks, enhancing governance structures to mitigate litigation risks, and ultimately adopting participatory decision-making models for impact investment processes. While the study focuses on the European market, its findings highlight broader challenges in sustainable finance. Future research could explore different financial instruments, regulatory environments, and geographical contexts to further refine strategies for ensuring impact integrity in the evolving impact investing landscape.| File | Dimensione | Formato | |
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https://hdl.handle.net/10589/233052