Contracts with Benefits: The Implementation of Impact Investing
67 Pages Posted: 26 Apr 2018 Last revised: 28 Jul 2019
Date Written: July 2019
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: Suggested Citation