Profiting From Our Pain: Privileged Access to Social Impact Investing

55 Pages Posted: 14 Jul 2020 Last revised: 27 Aug 2021

See all articles by Cary Martin Shelby

Cary Martin Shelby

Chicago-Kent College of Law - Illinois Institute of Technology

Date Written: August 2021


Social impacting investing has become the latest trend to permeate the financial markets. With massive anticipated funding gaps for sustainable development goals, and a millennial-driven thirst for doing good while doing well, this trend is likely to continue in the coming decades. This burgeoning industry is poised to experience yet an additional boost, since it provides an alternative mechanism for private actors to “profit from our pain,” particularly in the wake of the COVID-19 pandemic and the Black Lives Matter movement.

As to be expected, the law has not sufficiently adapted to this new wave of innovation. Scholars have thus focused on how social impact investing should be measured and disclosed. However, they have paid limited attention to whether federal securities laws’ antiquated distinctions between public and private indicators—or rather its public-private divide—contributes to the harms that poorly overseen social impact investments can cause. This Article seeks to fill this scholarly gap by exploring how this public-private divide gives rise to the possibility that social impact investing will lead to exploitation. This divide permits regulatory loopholes where social impact investors can obscure information about potential negative externalities flowing from their investments. It further allows elite investors to exclusively profit from community pain.

These loopholes are troubling because social impact investing has the highest potential for impact along the continuum of socially conscious strategies. However, due to the need for regulatory flexibilities, such as the power to invest in illiquid assets, most social impact investors operate as exempt entities. Retail investors, who encompass all members of the general public, are restricted from accessing these privately held investment vehicles due to investor protection concerns. Restricting investors in this manner is a primary indicator of privateness under federal securities laws. Affected community members, who are the targeted beneficiaries of these schemes, are thus excluded as investors. This exclusion also limits transparency, yet an additional indicator of privateness, which would enable the general public as well as policy makers to make assessments about the extent to which these schemes are maximizing net social welfare. This is particularly problematic given the potential for social impact investments to generate unaccounted for negative externalities, such as when seemingly clean energy technologies inadvertently destroy surrounding environments or habitats. Solely relying on privately ordered solutions can leave costly loopholes given that they are completely voluntary and lack standardization.

Innovative regulatory solutions that reconceptualize this public private divide may best address potential harms of social impact investments. This Article proposes to combine existing indicators of “publicness” and “privateness” while perhaps creating new measures. Codified in an entirely new series of exemptions entitled the “Social Impact Exemptions” that would appear under the Securities Act of 1933 and the Investment Company Act of 1940, these exemptions would effectively recalibrate existing rules related to retail investor access and disclosure, while possibly creating new frameworks for accountability and management structure.

Suggested Citation

Shelby, Cary Martin, Profiting From Our Pain: Privileged Access to Social Impact Investing (August 2021). California Law Review, Vol. 109, 2021 (Forthcoming), Washington & Lee Legal Studies Paper No. 2020-07, Available at SSRN: or

Cary Martin Shelby (Contact Author)

Chicago-Kent College of Law - Illinois Institute of Technology ( email )

565 W. Adams St.
Chicago, IL 60661-3691
United States

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