Social impact investing is transforming the availability of private capital for nonprofits and social enterprises, but demand is not yet meeting supply. This paper analyzes the perceived barriers faced by nonprofits in engaging with SII, arguing the need to assess differences using a policy field framework. Four parameters of a subsector are conceptualized as shaping participation in SII: the scale of investment required, embeddedness in place, the need for radical innovation, and the configuration of intermediaries. Based on 25 interviews with (...) leaders of nonprofits and intermediaries in affordable housing and community economic development in Canada, the study finds that significant barriers are a lack of knowledge of the market, inadequate financial literacy, and the challenges of measuring and valuing social impacts. In addition, nonprofits report that, in spite of the inherent importance of social impact in this form of investing, they currently make limited use of evaluation and impact metrics, and perceive that intermediaries and investors, particularly in affordable housing, still put a greater emphasis on financial over social returns. (shrink)

In the rapidly emerging field of impact investing, investors and investees collaborate to generate financial returns while addressing social and environmental challenges. This article conceptualizes impact investing as a value-based activity whereby value (in)congruence shapes relationships between investors and investees. Based on Schwartz’s basic values theory and the concept of value congruence, we examine 18 investor–investee dyads and identify four types of dynamic value–(in)congruent relationships: Nirvana, Yin and Yang, Soul-Searching, and Shiva. We capture these dynamic relationship types in the proposed (...) impact-investing value (in)congruence model, showing the complexity of value (in)congruence in such relationships, as both congruence and incongruence have positive and negative outcomes. The article provides the implications for practice and directions for further research. (shrink)

Investors with standard monetary preferences will give a fund manager incentives to increase firm profits, which can be achieved through a share in profits via carried interest. When investors have social preferences, it is not clear which incentives the manager should receive. We explore this puzzle by applying an agency theory perspective to impact investing, a practice where investors seek both financial returns and a measurable social or environmental impact. Using an inductive, qualitative approach, we identify and describe the ethical (...) tensions and challenges faced by fund managers to structure and implement impact-based variable compensation schemes. Our results indicate that economic incentives tied to non-financial objectives are useful to alleviate goal incongruity between principals and agents during fund creation but have the potential to lead to perverse effects during the fund lifecycle, where managers may exploit subjective non-financial metrics to maximize personal wealth. We introduce the concept of impact fidelity, a conceptual equivalent of fiduciary duty, to ensure that investment decisions reflect the asset owner’s impact preferences. (shrink)

Business Ethics: A European Review, EarlyView.