Contracts with Benefits: The Implementation of Impact Investing

65 Pages Posted: 26 Apr 2018 Last revised: 20 Sep 2018

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: September 18, 2018

Abstract

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

Geczy, Christopher Charles and Jeffers, Jessica and Musto, David K. and Tucker, Anne M., Contracts with Benefits: The Implementation of Impact Investing (September 18, 2018). 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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