Firms that derive more of their revenue from products or services delivering positive impact tend to generate stronger financial performance, according to research from UK-based asset manager Schroders. The analysis of 257 firms – conducted in partnership with Oxford University’s Saïd Business School – demonstrated that impact investing can be a driver of alpha across listed equities under the right conditions, the company said. The research assessed whether 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. The data collection, financial modelling and back-testing was run independently by the Saïd Business School to ensure methodological independence and rigour. As well as showing that companies with higher revenue alignment to measurable impact themes generated superior financial returns, the analysis also demonstrated that impact portfolios delivered strong absolute and risk-adjusted returns, exhibiting statistically significant alpha unexplained by traditional risk factors. Impact portfolios also exhibited lower volatility, reduced drawdowns, and milder negative skewness compared to conventional indices, suggesting stronger downside protection. In addition, they showed stronger correlation with the market in economic expansions and weaker correlation in recessions, indicating asymmetric market exposure and stability. “Active investment via a robust impact measurement and monitoring framework remains key. 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,” said Maria Teresa Zappia, Global Head of Impact at Schroders.
