New study highlights ‘wishful thinking’ in impact investing

A Closer Look at Impact Investing

A new academic study titled "Who Loses in Win-Win Investing? A Mixed Methods Study of Impact Risk" reveals that many impact investors overestimate the positive outcomes of their investments without solid evidence to back their claims. This study shines a light on a significant gap in how impact investments are understood and evaluated. For instance, a staggering 70% of surveyed investors believed their efforts were helping communities, yet only a fraction had data to prove it.

Key Findings of the Study

Published in the Academy of Management Journal, the research points out that the widely held belief in "win-win" investing - where financial returns and positive social or environmental impact coexist - can obscure critical risks. Through 124 interviews and a large-scale survey, the study indicates that many investors assume impact success simply by investing in sectors like education, clean energy, or microfinance. However, they often neglect to measure actual outcomes through reliable metrics.

Influence of Intuition, Stereotypes, Emotional Commitment and Potential Risks

“Investors often rely on intuition and sector stereotypes instead of hard data,” stated co-author Professor Julie Battilana from Harvard University. “This creates blind spots where harms or underperformance may go unnoticed.”

For example, some investors might feel confident about the impact of their investment in renewable energy based on its popularity, yet neglect thorough analysis. Believing in the success of investments based on reputation can mislead stakeholders and distort the intended benefits of their contributions.

The study emphasizes that when investors have a strong emotional or ideological investment in doing good, they may resist scrutiny and shy away from asking tough questions that could reveal unfavourable results. This reluctance can inadvertently harm the vulnerable communities they aim to support. For example, an investor might champion a microfinance initiative without fully examining its long-term effects on borrowers, leading to potential financial strain for those communities. Balancing ambition with accountability is vital in the realm of impact investing.

The Importance of Evaluation

As the impact investing sector surpasses $1.5 trillion globally, researchers advocate for more rigorous impact measurement, transparency, and the need for a cultural shift that embraces accountability alongside good intentions. Investors should look beyond just financial metrics; understanding the broader implications of their investments is essential.

The study suggests that while impact investing has the potential for significant positive change, true results depend on careful evaluation. Impact investors should focus on frameworks that provide comprehensive assessments and clear outcomes rather than assuming success based on the sectors they choose to invest in.

“These are the reasons we at Ethinvest put such store in looking under the surface when reviewing new investment options,” said Ethinvest’s Trevor Thomas. “Hundreds of organisations approach Ethinvest and Australian Impact Investments every year looking for investors, but only around 10% of what we see stacks up financially and in terms of genuine impact.” This emphasis on thorough evaluation safeguards investors and the communities they intend to help.

Moving Forward Responsibly

The recent study brings attention to the crucial conversation surrounding impact investing, particularly regarding the tendency to overestimate benefits without empirical evidence. As the sector continues to grow, it is vital for ethical investors to conduct rigorous evaluations that uphold accountability. This ensures that their investments create the positive change they seek.

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References & further reading:

• Kaufmann, L., & Botha, H. (2024). Who loses in Win-Win Investing? A Mixed methods study of impact risk. Journal of Business Ethics. https://doi.org/10.1007/s10551-024-05788-8

• Rossingh, D. (2025, July 8). Study highlights ‘wishful thinking’ in impact investing. Impact Investor. https://impact-investor.com/study-highlights-wishful-thinking-in-impact-investing/