Article: Monday, 26 February 2024

Amidst rising scepticism about the impact of sustainable investing, new research from Rotterdam School of Management, Erasmus University (RSM) shows that traditional strategies for influencing companies like shareholder engagement and portfolio screening, are not exhaustive. The researchers explain the under-recognised strategy for influencing companies in a short video below. Researchers were Associate Professor Dr Emilio Marti and PhD candidate Martin Fuchs of RSM, and Dr Mark DesJardine of Penn State University, Dr Rieneke Slager of Rijkuniversiteit Groningen, and Prof. Jean-Pascal Gond of Bayes Business School, City, University of London.

By screening over 3,500 research papers, the researchers identified an under-recognised strategy for influencing companies, which they call ‘field building’. Field building means that investors influence the fields in which companies operate, thereby exerting influence on companies indirectly via other stakeholders or by changing aspect of the field.

The researchers identify five tactics for field building:

1. Shifting other investors’ evaluation of issues

2. Sharing expertise

3. Delegitimising certain business activities

4. Establishing voluntary standards

5. Supporting regulatory changes

Each of the five tactics can change the fields in which companies operate, thereby creating additional pressure for companies to become more sustainable.

“Each of the five tactics can change the fields in which companies operate, thereby creating additional pressure for companies to become more sustainable. Despite these opportunities for increasing their impact, two reasons may deter investors from venturing into field building,” said Dr Marti.

Investments for creating greater impact

“One reason is profitability. It can be difficult to make a business case for field building over the short term. Field building mostly generates costs for an investor, while benefits will be captured by other investors, including those in the future. Yet, given that many individuals are willing to accept lower returns if their investments create greater impact, they may seek out asset managers that engage in field building even if higher management fees slightly lower their returns."

Taking a political stance on sustainability

“Another reason that investors might be deterred is political exposure. Field building requires that asset managers publicly take a stance on sustainability issues, which could lead to a backlash from people with different views – a risk that is higher among asset managers that cater to a wide range of customers. These asset managers can limit this risk by doing field building on sustainability issues for which a broad consensus exists among their customers, and those that are backed by a strong business case,” says Emilio Marti.

By broadening their toolbox of tactics and mastering field building, investors can better position themselves to have a more positive impact on the environment and society — and, in doing so, attract more individual investors that care about impact.

dr. E.S. (Emilio) Marti
Associate Professor
Rotterdam School of Management (RSM)
Erasmus University Rotterdam
Photo
Emilio Marti
M. (Martin) Fuchs
PhD Candidate
Rotterdam School of Management (RSM)
Erasmus University Rotterdam
Photo
Martin Fuchs
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