Impact investing can be a driver of alpha across listed equities under the right conditions, according to research published by Schroders in partnership with Oxford University’s Saïd Business School.
Analysing 257 impact companies, the research assessed whether the firms outperformed traditional benchmarks using asset pricing models and regression analysis. Key financial drivers were controlled – size, value, momentum, profitability and investment factors – to determine if impact firms generated alpha independent of risk characteristics.
Firms with higher impact materiality – the extent to which a company’s revenue is derived from products or services delivering positive impact – tended to exhibit stronger financial performance, the research demonstrated. Examples of companies delivering positive impact encompass, for example, firms that are leading the low-carbon transition and companies expanding financial inclusion.
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Amir Amel-Zadeh, director of the Oxford Rethinking Performance Initiative, Saïd Business School, University of Oxford, said: “This research offers a timely and important challenge to the persistent belief that impact investing must come at the cost of financial performance. By integrating impact metrics with traditional financial analysis, the findings show that well-constructed impact portfolios can deliver competitive returns with lower volatility and downside risk.
“While not every impact strategy will outperform, the findings in this study challenge the assumption that purpose-driven investing requires financial sacrifice—and suggest that, when executed with discipline, impact can contribute to long-term value creation and portfolio resilience.”
An analysis of the research highlighted three key findings. Impact portfolios delivered strong absolute and risk-adjusted returns, exhibiting statistically significant alpha unexplained by traditional risk factors.
Such portfolios also exhibited lower volatility, reduced drawdowns and milder negative skewness compared to conventional indices, suggesting stronger downside protection. Additionally, researchers found a stronger correlation with the market in expansions and a weaker correlation in recessions, indicating asymmetric market exposure and stability. Companies with higher revenue alignment to measurable impact themes generated superior financial returns.
The data collection, financial modelling and back-testing was run independently by the Saïd Business School to ensure methodological independence and rigour.
Maria Teresa Zappia, global head of impact, Schroders, added: “For too long the assumption in markets has been that impact investing requires sacrificing returns in favour of purpose. Now, our pioneering research provides answers on the relationship between impact and financial returns, and evidence that impact investments can be a driver of alpha generation in listed markets.
“Active investment via a robust impact measurement and monitoring framework remains key, however. For investors that get this right, aligning financial strength and impact could not just deliver positive purpose outcomes, but an investment return edge as well.”
