Abstract

This study examines the dynamics between the financial and socio-environmental returns of Saudi Arabian impact investment funds, a field that remains largely unexplored. These dynamics constitute an ongoing academic debate on the trade-offs and synergies between the dual objectives of these funds. To uncover these dynamics, a cross-sectional analysis was conducted using robust statistical techniques on a census of 22 publicly funded impact funds authorized by a competent regulatory institution. The findings reveal that Saudi impact funds underperform relative to their stock market benchmarks, the Tadawul All Share Index. Despite this, funds with income-generating objectives achieved better financial returns than those focused on capital preservation. Furthermore, Saudi impact funds, compared to global benchmarks, significantly exceed them in Environmental, Social, and Governance returns while remaining virtually undifferentiated in terms of risk. A positive and significant correlation was also found between the financial and socio-environmental returns of these funds, providing evidence of their synergy. In conclusion, Saudi impact funds exhibit a trade-off compared to their market benchmarks, implying a reduction in financial returns in exchange for achieving long-term socio-environmental benefits. However, it is possible to invest in these funds, aware of the financial sacrifice, to leverage the synergistic effect and obtain the best possible financial performance within the segment while simultaneously achieving a powerful and tangible socio-environmental impact. Fund managers are encouraged to develop innovative investment strategies to maximize synergy.

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