There is no question that socially responsible investing has exploded in recent years.

In 2016, total global assets under management within the combined socially responsible, ESG (environmental, social, and governance), and sustainable space reached $22.89 trillion – up 25 percent since 2016 – according to the US SIF: The Forum for Sustainable and Responsible Investment. In the passive space, growth of ESG offerings has also been impressive. In 2017, Athena Capital Advisors estimated that since the first SRI & ESG ETF was launched in 2005, more than 50 new products have been launched, attracting over $6 billion of inflows (Landscape Review: Passive SRI & ESG Investing in Public Equity Markets, Athena Capital Advisors, July 2017).

But while the scale of socially conscious investing has swelled, an important question remains unanswered today: Does secondary market trading of a large, listed company’s shares actually have any influence on that company’s behavior on social or environmental issues, or how it allocates capital? For example, does buying the SPDR MSCI ACWI Low Carbon Target ETF truly help address climate change? Will investing in the Barclays Women in Leadership ETF actually advance the careers of women in the workplace?

For my organization, JUST Capital, this is more than simply a theoretical question, as we recently helped launch an ETF designed to invest in companies that are driving positive change for workers, customers, communities, and the environment – and so we have real skin in the game.

To impact investing purists, the answer to the headline question is probably a negative one. True impact investing, they argue, requires that there be a clear increase in social outcomes beyond what would otherwise have occurred without the investment in question – a requirement almost impossible to prove in the listed equities space, let alone in the index investing area.   But while direct cause and effect may be challenging to prove, we are optimistic about the potential for socially-motivated investing to promote a more just marketplace for the following reasons.

First, in the public markets, the more capital flows into these strategies, the more companies are incentivized to be better on the underlying themes and criteria in question. SRI investors also tend to be longer term investors, who can be more supportive of management. In addition, activist investors, or those with robust shareholder engagement strategies, utilize their positions as shareholders to connect with corporate management, either directly or via the proxy voting process, to raise concerns and focus management’s attention on issues that matter.

Furthermore, actively managed strategies – whether they incorporate negative screens, positive integration of ESG factors, or targeted thematic approaches – also focus attention on the links between financial and ESG performance, and therefore help drive change by signaling to executives that there is a “business case” for corporate leadership on ESG issues.

Finally, and perhaps most importantly, investing in these products makes a statement. Investing in a low carbon ETF sends a clear message to the marketplace that climate change matters. The larger and more successful that ETF is, the louder that message is.

No active or passive public markets investment solution should lay claim to a proven causal link between shares being bought and sold and corporations becoming more proactive on social impact themes (although they certainly explore it). But that misses the point. Claiming a clear causal link between investment action and corporate outcome on anything is a fraught process (ask the 85% of active managers who’ve failed to beat their benchmarks over the past year).

If free market enterprise is really going to help move the needle on our most intractable social, economic, and environmental challenges then we must seek to influence, however we can, the way capital flows throughout our economic system, and in particular, the manner in which it affects the large, publicly-traded companies that drive the country forward. We need to trust that market incentives will help steer market behavior – and the louder the demand, the more aggressive the response we can expect from the market. That is how social impact at scale can be affected.

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