Impact investing can be a driver of outsize stock returns under the right conditions, according to research published this week by global investment-management firm Schroders in partnership with Oxford University’s Saïd Business School.

The findings showed that firms with what researchers called “higher impact materiality” – the extent to which a company’s revenue is derived from products or services delivering positive impact – tend to exhibit stronger financial performance. Examples of such positive impacts include firms that are leading the low carbon transition and companies expanding financial inclusion.

“For too long the assumption in markets has been that impact investing requires sacrificing returns in favor of purpose.,” said Maria Teresa Zappia, global head of impact, Schroders. “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,” she said.

The researchers looked at 257 companies to assess 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.

By introducing impact materiality as a potential return driver and incorporating real-world case studies, the research provides a data-driven look at the financial viability of impact investing in listed equities.

The study identified firms such as Schneider Electric, a leader in digital energy solutions helping businesses optimize energy efficiency and reduce carbon emissions, and Gentera, a Latin American microfinance firm, focused on providing credit and financial services to underserved groups including female entrepreneurs.

The data collection, financial modelling and back-testing was run independently by the Saïd Business School to ensure methodological independence and rigor, Schroders said in a release announcing the findings.

The analysis highlights three key findings:

• Competitive returns: Impact portfolios delivered strong absolute and risk-adjusted returns, exhibiting statistically significant alpha unexplained by traditional risk factors.
• Lower volatility, greater resilience: Impact portfolios exhibited lower volatility, reduced drawdowns, and milder negative skewness compared to conventional indices, suggesting stronger downside protection. They also showed stronger correlation with the market in expansions and weaker correlation in recessions, indicating asymmetric market exposure and stability.
• Impact materiality drives returns: Companies with higher revenue alignment to measurable impact themes generated superior financial returns.

“This research offers a timely and important challenge to the persistent belief that impact investing must come at the cost of financial performance,” said Amir Amel-Zadeh, Director of the Oxford Rethinking Performance Initiative, Saïd Business School, University of Oxford.

“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,” Amel-Zadeh said.

The data collection, financial modelling and back-testing was run independently by the Saïd Business School to ensure methodological independence and rigor, Schroders said in a release announcing the findings.

Schroders is a global investment manager which provides active asset management, wealth management and investment solutions, with $975.3 billion of assets under management. The Oxford Rethinking Performance Initiative at Saïd Business School, University of Oxford, is at the forefront of research and practice in sustainable business and finance collaborating with international corporations and investment managers.

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