Contracts with Benefits: The Implementation of Impact Investing
65 Pages Posted: 26 Apr 2018 Last revised: 20 Sep 2018
Date Written: September 18, 2018
The Private Equity/Venture Capital industry has developed contracting practices that align incentives for value creation while addressing agency problems. Impact investing adds social benefits to the value a fund aims to create, raising the question of how impact funds should adapt contracting practices optimized for monetary goals. We address this question by analyzing contracts struck by impact funds, both forward to portfolio companies and back to investors, and find that the contracts incorporate new terms directly operationalizing impact, and also adjust the use of existing terms on compensation, governance, investor protection and other concerns to facilitate it.
Keywords: impact investing, venture capital, private equity, socially responsible investment, sustainable investing, corporate social responsibility, contracts
JEL Classification: D64, D86, G24, G32, K12, M14
Suggested Citation: Suggested Citation