How impactful is the financial performance of impact investing? Compared to the conventional benchmark

Impact investing, characterized by its dual pursuit of financial returns and favorable social or environmental outcomes, has emerged as a potential catalyst for sustainable finance. Despite its growing popularity, empirical evidence on how its financial performance relative to traditional ones remains relatively scant. This study addresses this gap by evaluating the financial performance of impact assets compared to a conventional equity benchmark from multiple perspectives under varying market conditions. Unlike prior research that typically uses single proxies or overlooks regime shifts, we employ a comprehensive framework that incorporates multiple impact indices and accounts for varying market conditions—including both normal and extreme states. Findings demonstrate that most impact assets show positive and competitive risk-adjusted returns, with lower downside risks, often surpassing the benchmark. Results also show a robust association of impact assets with the benchmark, limiting their hedging roles, particularly in extreme markets. However, pairwise spillover analysis reveals a relatively low connectedness in normal market circumstances, suggesting potential diversification benefits. These nuanced findings raise questions against the notion of financial sacrifice required to attain impact, offering valuable insights for investors, portfolio managers, and policymakers about the attractiveness of impact investments in mainstream finance.