The Best of Both Worlds? Impact Investors and Their Role in the Financial versus Social Performance Debate

38 Pages Posted: 9 Sep 2014 Last revised: 18 Aug 2015

See all articles by Sérgio G. Lazzarini

Sérgio G. Lazzarini

Insper Institute of Education and Research

Sandro Cabral

Insper Institute of Education and Research; Federal University of Bahia (UFBA)

Luciana Carvalho de Mesquita Ferreira

Insper Institute of Education and Research

Leandro Pongeluppe

University of Toronto, Rotman School of Management

Angelica Rotondaro

University of St. Gallen

Date Written: September 7, 2014

Abstract

Over the last decades, management scholars have tried to examine whether profitability can be achieved with actions that also improve social and environmental performance. More recently, this debate has gained new traction with the emergence of the so-called "impact investors," who not only avoid firms with negative practices, but also actively seek projects with proven metrics of social impact. In other words, they represent a new class of investors where financial and social performance are expected to be harmonized. In this paper we aim to understand how impact investors approach financial and social goals, and the mechanisms used to gauge and reconcile these performance dimensions. Given the still evolving stage of the impact investing industry, we follow a grounded theory approach using data from qualitative interviews and discussions groups with investment funds, social entrepreneurs, non-profit organizations and other actors in the industry. We then contribute with a novel theoretical framework proposing how different types of impact investors and contractual arrangements emerge in two situations: when financial and social goals are naturally aligned ("complements") and when pursuing superior profitability might undermine actions to increase social performance ("substitutes").

Keywords: Impact investing, financial performance, social performance, corporate social responsibility, shared value

Suggested Citation

Lazzarini, Sérgio Giovanetti and Cabral, Sandro and Ferreira, Luciana Carvalho de Mesquita and Pongeluppe, Leandro and Rotondaro, Angelica, The Best of Both Worlds? Impact Investors and Their Role in the Financial versus Social Performance Debate (September 7, 2014). U. of St. Gallen Law & Economics Working Paper No. 2015-06. Available at SSRN: https://ssrn.com/abstract=2492860 or http://dx.doi.org/10.2139/ssrn.2492860

Sérgio Giovanetti Lazzarini (Contact Author)

Insper Institute of Education and Research ( email )

R Quata 300
Sao Paulo, 04542-030
Brazil
55-11-45042387 (Phone)

HOME PAGE: http://www.sergiolazzarini.insper.edu.br/indexelazza.html

Sandro Cabral

Insper Institute of Education and Research ( email )

R Quata 300
Sao Paulo, 04542-030
Brazil

Federal University of Bahia (UFBA) ( email )

Av. Reitor Miguel Calmon, s/n
Vale do Canela
Salvador, Bahia
Brazil

Luciana Carvalho de Mesquita Ferreira

Insper Institute of Education and Research ( email )

R Quata 300
Sao Paulo, 04542-030
Brazil

Leandro Pongeluppe

University of Toronto, Rotman School of Management ( email )

Toronto, ON
Canada

Angelica Rotondaro

University of St. Gallen ( email )

Dufourstrasse
St. Gallen, 9000
Switzerland

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