Amid rising scepticism about the effectiveness of sustainable investing, New research from Rotterdam School of Management (RSM) has uncovered an underappreciated strategy that could reshape how investors influence corporate sustainability. This study reveals that traditional methods, such as shareholder engagement and portfolio screening, do not fully capture the potential for impactful sustainable investing. Instead, the research introduces a novel approach known as “field building,” which offers a promising avenue for investors looking to drive more significant change.
Field Building
Field building represents a strategic shift in how investors approach corporate influence. Rather than directly engaging with companies or merely screening portfolios for sustainability, field building focuses on transforming the broader environments in which companies operate. By altering the field, investors can indirectly impact companies through other stakeholders or by changing critical aspects of the industry landscape.
The research identifies five key tactics associated with field building:
- Shifting Other Investors’ Evaluation of Issues: This tactic involves influencing how other investors assess and prioritize sustainability issues. By changing the criteria used by the broader investment community, investors can generate increased demand for sustainable practices across various industries.
- Sharing Expertise: Providing specialized knowledge and insights about sustainability issues helps improve overall understanding and implementation of sustainable practices. This tactic fosters a more informed investment community and supports the development of best practices in sustainability.
- Delegitimizing Certain Business Activities: Investors can work to undermine practices deemed unsustainable or harmful. By challenging the legitimacy of these activities, they create pressure for companies to adopt more responsible practices and align with sustainability goals.
- Establishing Voluntary Standards: Creating non-mandatory guidelines for businesses encourages adherence to higher standards of sustainability. These standards act as benchmarks for best practices and can drive industry-wide improvements.
- Supporting Regulatory Changes: Advocating for and supporting policy changes that promote sustainability leads to more comprehensive and enforceable standards. This tactic aligns business practices with broader societal goals and enhances overall sustainability efforts.
Challenges to Embracing Field Building
Despite its potential, field building presents challenges. One major hurdle is profitability. Field building often requires substantial upfront investment, with benefits that may not be immediately apparent. This can be a tough proposition for investors who prioritize short-term returns. However, many investors are willing to accept lower returns if their investments contribute to greater social or environmental impact. Consequently, asset managers who focus on field building may attract investors who value impact over immediate profits.
Political exposure is another challenge. Engaging in field building often requires publicly taking a stance on sustainability issues, which can lead to backlash from stakeholders with opposing views. Asset managers serving a broad customer base may face increased risks of political exposure. To mitigate this risk, they can concentrate on sustainability issues that have broad consensus and are supported by strong business cases.
Broader Impact and Future Directions
The research highlights the importance of expanding the range of strategies available to investors. By incorporating field building into their sustainable investing practices, investors can enhance their impact on environmental and social issues. This approach not only supports sustainability efforts but also attracts individual investors who are committed to making a meaningful difference. As the field of sustainable investing evolves, field building could become a key strategy for achieving long-term, impactful change in corporate sustainability.