Contracts with Benefits: The Implementation of Impact Investing

67 Pages Posted: 26 Apr 2018 Last revised: 28 Jul 2019

See all articles by Christopher Geczy

Christopher Geczy

University of Pennsylvania - The Wharton School, Finance Department

Jessica Jeffers

University of Chicago - Booth School of Business

David K. Musto

University of Pennsylvania - Finance Department

Anne M. Tucker

Georgia State University College of Law

Date Written: July 2019

Abstract

Impact investing adds a social-benefit goal to the usual financial goal of investing. The additional goal complicates the alignment of incentives through layers of agency, and raises the question of how contracting practices should adapt. We draw on legal documents from impact funds to address this adaptation empirically, and relate it to contract theory. We find that the contracts with both portfolio companies and investors use new terms to directly operationalize impact, and also adjust the use of existing terms on governance and compensation. Moreover, funds’ direct contracting on impact with investors passes through to their contracting with portfolio companies.

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

Geczy, Christopher Charles and Jeffers, Jessica and Musto, David K. and Tucker, Anne M., Contracts with Benefits: The Implementation of Impact Investing (July 2019). Available at SSRN: https://ssrn.com/abstract=3159731 or http://dx.doi.org/10.2139/ssrn.3159731

Christopher Charles Geczy

University of Pennsylvania - The Wharton School, Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States
(215) 898-1698 (Phone)
(215) 898-6200 (Fax)

Jessica Jeffers (Contact Author)

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

David K. Musto

University of Pennsylvania - Finance Department ( email )

The Wharton School
3620 Locust Walk
Philadelphia, PA 19104
United States

Anne M. Tucker

Georgia State University College of Law ( email )

P.O. Box 4037
Atlanta, GA 30302-4037
United States
(404) 413- 9179 (Phone)

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