Higher ‘impact materiality – the extent to which a company’s revenue is derived from products or services delivering positive impact – means higher excess returns, according to a new study of publicly listed equities from Schroders, the trillion-dollar UK investment manager, and Oxford’s Saïd Business School.
“These findings suggest that impact investing can deliver strong risk-adjusted financial returns, with impact itself acting as a driver of alpha in the right conditions,” write Schroders’ Catherine Macaulay and Amir Amel-Zadeh, director of the Oxford Rethinking Performance initiative. “Impact portfolios don’t just keep up with traditional benchmarks—they can even outperform them.”
The researchers identified 257 firms using a framework developed by BlueOrchard, the impact investing manager Schroders acquired in 2019, and randomly generated 10 portfolios of 40 companies each. Eight of the 10 outperformed an MSCI benchmark between 2010 and 2023.
“The impact portfolios demonstrated stronger absolute and risk-adjusted performance, lower market sensitivity, and greater resilience in downturns,” the study concluded. “Even after controlling for market risk, size, and value factors, impact firms generate statistically significant alpha.”
Performance drivers
Impact firms operate with stronger margins, expand their workforce faster, and actively deploy capital, the authors say. “On average, the monthly alpha is about 1% and highly statistically significant.”
Climate- and other impact-focused investment managers have increasingly adopted impact, or revenue, materiality as a way to select equities, setting thresholds of between 50% and 80% of revenues.
The study cites France-based Schneider Electric, which has steadily built its business around helping companies optimize energy efficiency and reduce emissions. “With increasing demand for sustainable solutions, Schneider is well-positioned for future growth,” the authors say.
The Mexico City-based financial institution Gentera provides credit and financial services to underserved populations, particularly women entrepreneurs. The authors note the company’s double-digit loan growth and return on equity of more than 20% “demonstrate that financial inclusion can be both impactful and profitable.”
