Impact investing: a literature review of investor impact mechanisms and their impact potential

Abstract Although investor contribution is central to impact investing, research offers limited and fragmented evidence on whether and how investors can influence company-level social and environmental outcomes. This review addresses two related research questions: Which mechanisms can investors use to contribute to company-level impact and how do these mechanisms differ in their investor impact potential? The review synthesizes and evaluates the literature on the different impact mechanisms that investors deploy to generate company-level impact. Additionally, the review introduces the concept of investor impact potential and examines the direct and indirect pathways through which such mechanisms may influence company-level impact and evaluates their relative impact potential. The review finds that impact potential varies considerably across mechanisms depending on the pathways through which they operate and the conditions under which they are deployed. It also identifies possible future research avenues. In particular, the indirect effects of investor impact mechanisms remain largely underexplored andthe impact potential of secondary market investments is still uncertain. By integrating and evaluating the existing literature, the paper provides a conceptual model for understanding investor contribution and identifies research priorities for future studies on impact investing.